Macro Tsimmis

intelligently hedged investment

Activision Blizzard (ATVI) update #16—2Q10 results beat guidance but disappoint investors

Posted by intelledgement on Fri, 06 Aug 10

Our game publishing company, Activision Blizzard (ATVI), announced 2Q10 results yesterday that exceeded management’s guidance from three months ago, but failed to impress The Street…and the stock is trading sharply lower today, currently down over 6%. The guidance had called for revenues of $925 million and a profit of eleven cents per share in the quarter and the actual results included revenues of $967 million and a profit of 17 cents per share. While exceeding the guidance, the revenue results did fall short of what was achieved a year ago (1.038 billion).

CEO Bobby Kotick stated, “Our quarterly results were fueled by continued strong consumer response to Activision Publishing’s ‘Call of Duty’ franchise and Blizzard Entertainment’s ‘World of Warcraft.’ For the first and second quarters, we outperformed our earnings per share outlook, and we grew our operating margin year over year for the six month period, driven by our focused effort to increase digital revenues…. Looking to the balance of the year, we expect to release the best slate in our company’s history. Blizzard Entertainment’s ‘StarCraft II: Wings of Liberty’ is off to a strong start worldwide with midnight openings on July 27, 2010 at 3,100 GameStop stores in the U.S. and 8,000 retailers around the world. We are, of course, enthusiastic about Blizzard Entertainment’s upcoming release of ‘World of Warcraft: Cataclysm,’ which began a closed beta test on June 30. ‘Call of Duty: Black Ops’ is shaping up to be one of the best games Activision Publishing has ever created, the marketing programs are the biggest in the company’s history and to date, pre-orders of the game exceed the pre-orders for Modern Warfare 2 at this time last year. This fall, our lineup includes Activision Publishing’s ‘Guitar Hero: Warriors of Rock,’ ‘DJ Hero 2,’ ‘Tony Hawk: SHRED,’ ‘Spider-Man: Shattered Dimensions,’ ‘GoldenEye 007,’ and ‘Bakugan,’ all of which look to be very promising as well. We have never been better positioned for the holiday season than we are today with such a strong slate of games and the best team in our industry to bring them to market.”

Management also announced that as of 30 June the company had purchased $334 million—approximately 3.1 million shares—of common stock under the $1 billion stock purchase program announced in February. Also, during the second quarter revenue from digital online channels grew more than 20% year-over-year. Guidance for 2010 still calls for revenues of $4.2 billion including $600 million in 3Q10 and 49¢/share of earnings including 0¢ (breakeven) in 3Q10.

Second quarter highlights included:

  • For the first six months of 2010, “Call of Duty: Modern Warfare 2” was the #1 first-person shooter game in the USA and Europe
  • For the first six months of 2010, “Call of Duty” was the #1 third-party franchise in the USA and Europe
  • For the first six months of 2010, Activision Publishing was the #2 third-party console and handheld publisher in the USA
  • For the quarter, “Call of Duty” was the #3 franchise overall and the #1 first-person shooter franchise in the USA
  • For the quarter, “Call of Duty: Modern Warfare 2” was the #1 first-person shooter title in the USA
  • For the quarter, Activision Blizzard had four top-10 PC games—Activision Publishing’s “Call of Duty: Modern Warfare 2” and Blizzard Entertainment’s “World of Warcraft: Wrath of the Lich King,” “World of Warcraft Battle Chest,” and “Diablo Battle Chest” in the USA
  • 19 May—“Shrek Forever After” released
  • 25 May—“Blur” released
  • 14 June—Activision Publishing extends deal with Microsoft (MSFT) to release new “Call of Duty” releases first on Xbox LIVE through 2012
  • 22 June—“Transformers: War for Cybertron” released
  • 24 June—“Wipeout: The Game” released
  • 29 June—“Singularity” released
  • 30 June—“World of Warcraft: Cataclysm” beta testing initiated

Things seem relatively calm in China, although Netease (NTES), Blizzard’s partner who runs the “World of Warcraft” (WoW) subscription business there—and will run “Starcraft” if that game ever gets approved—had a bad quarter. Still no word on the oft-delayed “Wrath of the Lich King” expansion, which Chinese WoW players have been awaiting—excepting those who have “defected” to Taiwan-based servers—for 21 months now. It would be embarrassing if the “Cataclysm” WoW expansion is released in the West before the “Wrath of the Lich King” is available in China.

Speaking of Blizzard, they did manage to cause a stir last month with an announcement that all posters on their gaming forums—which are quite lively—would henceforth be forced to sign their posts with their real names, instead of their game-playing screen name pseudonyms, as has always been the case heretofore. The intent was to constrain the activity of so-called “troll” posters, who lurk on message boards and are quick to castigate other posters for no discernible reason other than to gain attention or cure boredom. The idea was that if the trolls had to ascribe the real names to their noxious messages, they would cease and desist, and the forums would be more civil and more pleasant for everyone else. Unfortunately, it turns out it was not only the trolls who objected to losing the cloak of anonymity. According to a CNBC report, “Others…were more worried that anything they wrote on those message boards could be easily found with a Google search—and an off-the-cuff comment made online could have repercussions for them in real-world relationships…. Still others were concerned that with access to their real name, other players could dig up additional information about them, including photos, addresses, phone numbers and more. Some female players said they feared harassment.”

After three days of increasingly bad PR, Blizzard management recanted, apologized, and scrapped the change.

In 3Q10, three games are expected to be released: “StarCraft II: Wings of Liberty,” which was published 27 July, “Guitar Hero: Warriors of Rock” for the Xbox 360, the PLAYSTATION3, and the Wii, and “Spider-Man: Shattered Dimensions” for the Xbox 360, the PLAYSTATION3, the Wii, and the Nintendo DS.

Previous ATVI-related posts:

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