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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.

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Activision Blizzard (ATVI) update #14—1Q10 results surge on early Call of Duty release

Posted by intelledgement on Fri, 07 May 10

Our game publishing company, Activision Blizzard (ATVI), announced 1Q10 results yesterday that materially exceeded management’s guidance from three months ago. The guidance had called for revenues of $1.1 billion and a profit of twenty cents per share in the quarter and the actual results included revenues of $1.3 billion and a profit of 30  cents per share. The good news was tempered, however, by the realization that the bounty was largely attributable to the early release of a “Modern Warfare 2” expansion kit that had not been expected until the second quarter…and ergo the boost from which shall now be missing in 2Q10. And the beat was not a surprize, as management had preannounced it last month.

CEO Bobby Kotick stated, “Our better-than-expected first quarter performance was driven by strong global consumer demand for Activision’s ‘Call of Duty’ and Blizzard Entertainment’s ‘World of Warcraft’. Activision’s ‘Call of Duty: Modern Warfare 2’ was the #1 title overall in the U.S. and Europe for the quarter, which illustrates the continued momentum of our catalogue. Additionally, during the quarter, Activision launched DreamWorks’ ‘How To Train Your Dragon’ and the ’Call of Duty: Modern Warfare 2 Stimulus Package,’ which shattered Xbox LIVE records with more than one million packages downloaded in the first 24 hours…. We expect to deliver record calendar year non-GAAP net earnings and expanded non-GAAP operating margins. In addition, we continue to strengthen our franchise portfolio and development resources for the future. Our high-quality brands, industry leading operational capabilities and solid balance sheet should enable us to take full advantage of the opportunities afforded by the expanding interactive entertainment market and allow us to deliver continued superior returns to our shareholders. As of March 31, 2010, we have delivered compound shareholder returns of 28% compared to the S&P average of -2 % over a ten-year period. We continue to find ways to add profitable franchises that allow us to increase our operating margins. In this regard we recently announced a ten-year alliance with Bungie, one of the premier studios in our industry. This relationship will allow Activision to broaden its product portfolio with exciting new games and underscores our commitment to partnering with the best creative talent in the industry.”

Management also announced that as of 31 March the company had purchased $92 million—approximately 8.5 million shares—of common stock at an average price of $10.84 per share under the $1 billion stock purchase program announced in February. Guidance for 2010 still calls for revenues of $4.2 billion including $925 million in 2Q10 and 49¢/share of earnings (up from the previously projected 47¢) including 11¢ in 2Q10.

First quarter highlights included:

  • In the quarter, “Call of Duty: Modern Warfare 2” became the #1 best-selling third-party video game of all time
  • For the quarter, “Call of Duty” was the #1 third-party franchise in the USA and Europe
  • For the quarter, “Band Hero” and “Cabela’s Big Game Hunter 2010” were top-10 titles on the Nintendo Wii in the USA
  • For the quarter, “Call of Duty: Modern Warfare 2” and “World of Warcraft: Wrath of the Lich King” were top-10 PC titles in the USA
  • 10 February—stock repurchase program announced under which the company can repurchase up to $1 billion of ATVI shares
  • 11 February—Percy Jackson & The Olympians: The Lightning Thief released
  • 2 March—Activision Publishing announced the firing of Infinity Ward co-founders Jason West and Vince Zampella and the formation of a new business unit dedicated to the “Call of Duty” franchise headed by Philip Earl with the missions of expanding the brand to new geographies and devising “new margin expanding digital business models.”
  • 23 March—Zhu Zhu Pets released
  • 23 March—How to Train Your Dragon released
  • 30 March—Cabela’s Monster Buck Hunter released
  • 30 March—Call of Duty: Modern Warfare 2 Stimulus Package released

In China, the good news finally panned out as on 12 February, Blizzard licensee Netease received permission from the General Administration of Press and Publications (GAPP) to (re)release The Burning Crusade, the first expansion released for World of Warcraft (WoW) back in January 2007. This ends seven months of uncertainty and intermittent interruptions in WoW availability on the mainland, ever since the expiration of Blizzard’s five-year deal with The9, their previous licensee. 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 18 months now.

Now that the China WoW contretemps winding down, we will have to content ourselves with the Infinity Ward legal warfare drama. That heated up late last month as 38 additional Infinity Ward employees sued Activision over alleged delinquent royalties. They are seeking between $75 and $125 million plus $500 million in punitive damages. This is in addition to the $36 million in royalties sought by fired Infinity Ward co-founders West and Zampella in their suit filed in March. It is unclear how many of the 38 employees involved in the second suit have left Activision, but clearly there are some morale issues in the “Call of Duty” business unit, to say the least.

In 2Q10, four games are expected to be released: the new racing title “Blur,” “Shrek Forever After” based on DreamWorks Animation’s upcoming feature film, an original Transformers game, “Transformers: War For Cybertron,” and “Singularity.” Also, in the last ten days the company announced release dates for “Starcraft II” (27 July and separately, as of 28 April the Mac beta was released and Intelledgement staff are expecting to install it imminently) and “Call of Duty: Black Ops” (30 November).

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Activision Blizzard (ATVI) update #10—4Q09 results beat old guidance; new guidance so-so

Posted by intelledgement on Wed, 10 Feb 10

Our game publishing company, Activision Blizzard (ATVI), announced 4Q09 results today that generally matched management’s guidance. The guidance had called for revenues of $1.33 billion and a loss of four cents per share in the quarter and the actual results included revenues of $1.56 billion and a loss of 23 cents per share including a 19-cent reduction in the valuation of intangible assets reflecting the impact of a weaker market on the casual and music genres…exclusive of that non-cash charge, the loss would have been four cents per share. For the full year, the company had revenues of $4.28 billion and earnings of nine cents per share including the 19-cent charge (28 cents/share excluding the charge) as compared with guidance of $4.05 billion and earnings of 26 cents per share.

CEO Bobby Kotick stated, “We generated approximately $1.2 billion in operating cash flow and ended the year with approximately $3.3 billion in cash and investments. For the calendar year, in the U.S. and Europe, Call of Duty: Modern Warfare 2 was the #1 best-selling title overall and DJ Hero was the highest grossing new IP launched in 2009. Additionally, through Blizzard Entertainment’s World of Warcraft we remain #1 in the subscription-based massively multiplayer online role-playing game category worldwide…. Despite these challenging times, in 2010 we remain focused on expanding operating margins by growing our high-margin digital/online revenues, directing our resources to the largest and most profitable opportunities and realizing operational efficiencies globally. On a non-GAAP basis, we expect to deliver a year of record net earnings and operating margins and are taking another step towards our long-term objective of operating margins of 30% or more. In calendar year 2010, we expect our net earnings and operating margin growth will be driven by our product slate that includes Blizzard Entertainment’s Starcraft II and the World of Warcraft expansion pack, Cataclysm, as well as a diversified lineup based on Activision Publishing’s best-selling franchises including Call of Duty, Guitar Hero and Tony Hawk, together with other well-known titles such as True Crime, Spider-Man, and Bakugan.”

Management also announced a fresh $1 billion worth of share buybacks—the $1.25 billion program initiated in 2008 (originally as $1 billion and subsequently enhanced) was completed during 4Q09 with 115 million shares of common stock purchased at an average price of $10.87—as well as the first dividend in company in company history: 15¢/share payable to shareholders of record on 22 February. This amounts to a 1.5% payout based on today’s close of $9.96; they plan to pay an annual dividend going forward. Guidance for 2010 calls for revenues of $4.2 billion—$1.1 of that in 1Q10—and 47¢/share of earnings (20¢ in 1Q010)…basically flat revenues with improved profitability.

Fourth quarter highlights included:

  • For 2009, an overall 16% market share in the U.S. and Europe, an increase of 1.8 points
  • For 2009, two of the top-five best-selling franchises on the consoles across all platforms in the U.S. and Europe: Call of Duty and Guitar Hero
  • For 2009, #1 U.S. publisher overall for the PlayStation® 3 computer entertainment system from Sony (SNE) and the Xbox 360™ video game system from Microsoft (MSFT) and the #1 third-party publisher for the Nintendo Wii™
  • For 2009, highest share point gain of any publisher in Europe from 11.9% to 13.9%
  • For 2009, Guitar Hero was a top-four franchise overall and the #1 music franchise in the U.S. and Europe
  • For 2009, highest grossing new intellectual property launched in 2009 in the U.S. and Europe: DJ Hero
  • For 2009, two of the top five best-selling PC titles in dollars in the U.S. and Europe: Call of Duty: Modern Warfare 2 and World of Warcraft: Wrath of the Lich King
  • For 4Q09, 20.1% market share across all platforms in the U.S. and Europe—up 1.7 points over 4Q08—and #1 publisher overall
  • For 4Q09, Call of Duty: Modern Warfare 2 was the #1 best-selling console title in dollars and the Call of Duty franchise was the #1 franchise overall in the U.S. and Europe
  • 20 October—Bakugan Battle Brawlers video game, licensed by Corus Entertainment Inc.’s (CJR’s) Nelvana and based on the top-rated television series and Spin Master’s best-selling toy, was released for Nintendo DS, the Wii, the Xbox 360, and the PlayStation(R)3 and PlayStation(R)2
  • 26 October—Guitar Hero became the first game to surpass a million fans on Facebook
  • 27 October—DJ Hero released
  • 3 November—Band Hero released
  • 10 November—Call of Duty: Modern Warfare 2 released; on 15 November, it became the first video game ever to surpass $550 million in retail sales in its first five days of release and the game has sold more than $1 billion in retail sales worldwide to date
  • 17 November—Tony Hawk: RIDE released featuring a skateboard controller
  • 14 December—A new open world True Crime game inspired by classic Hollywood and Asian cinema-style action thrillers announced to be released in 2010

In China, WoW operations are semi-suspended again, but this time it appears to be good news. Months of wrangling between the Ministry of Culture and the General Administration of Press and Publications (GAPP) have evidently yielded an agreement whereby Blizzard’s WoW licensee NetEase (NTES) submitted an application to the GAPP for the approval of The Burning Crusade, the first expansion released for WoW back in January 2007. This is consistent with the Ministry of Culture’s position that the GAPP has jurisdiction only over packaged software “publications,” and not changes to online games. Nevermind that The Burning Crusade was released in China by Blizzard’s previous licensee, The9 (NCTY), back in September 2007 and the GAPP did not raise any objection at that time, or anytime since…until mid-2009. The agreement calls for NetEase to suspend new registrations for a week starting 8 February, during which time WoW servers will remain active and players will be allowed three hour/day of free access; presumably the GAPP approval will be forthcoming at that point. No word yet 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 15 months now. Overall, as of 31 Dcember 2009, there are approximately 11.5 million WoW subscribers worldwide, according to Blizzard.

In 1Q10, one Activision Blizzard title is scheduled for release: How To Train Your Dragon, which is based on DreamWorks Animation’s (DWA’s) upcoming 3D movie. The game will be published for the PlayStation 3, Xbox 360, Nintendo Wii, and Nintendo DS.

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Activision Blizzard (ATVI) update #5—strong lineup of future releases

Posted by intelledgement on Wed, 27 May 09

Activision Blizzard (ATVI), our game publisher company, published their lineup of forthcoming releases to be showcased at the 2009 Electronic Entertainment Expo (E3 Expo) taking place at the LA Convention Center 2-4 June 2009 today, and it’s pretty impressive:

  • PROTOTYPE puts the player into the shoes of Alex Mercer, a genetically mutated man without memory, armed with shape-shifting abilities, with the objective of discovering your purpose in life (and most likely rejecting it and punishing your creators for their presumption), for Xbox 360, PLAYSTATION 3, and Windows. Release date 2 Jun 09 (at E3).
  • Transformers™: Revenge of the Fallen is a licensed product based on the Dreamworks (DWA)-produced film—sequel to the 2007 film—based on the Hasbro (HAS) line of toys for the Xbox 360, PLAYSTATION 3, Wii, PlayStation 2, PlayStation Portable, Nintendo DS, and Windows. Release date 23 Jun 09.
  • Singularity is a new first-person shooter game set in a time travel scenario for Xbox 360, PLAYSTATION 3, and Windows. Release date 29 Jun 09.
  • Wolfenstein™ is the latest in a long line of sequels to the hoary 1981 Muse Software first-person shooter game, Castle Wolfenstein, for Xbox 360, PLAYSTATION 3, and Windows. Release date 4 Aug 09.
  • Modern Warfare 2, sequel to Call of Duty® 4: Modern Warfare™,  for Xbox 360, PLAYSTATION 3, and Windows. Release date 10 Nov 09.
  • Blur—a new car-racing game which can be played by up to four players on a console or up to 20 players online, for Xbox 360®, PLAYSTATION® 3, and Windows®. Release date not specified.
  • DJ Hero—the player controls a fully-rotating turntable, sample buttons, effects dial and cross fader, for Xbox 360, PLAYSTATION 3, PlayStation 2, and Wii™. Release date not specified.
  • Guitar Hero 5 features 85 of current bands plus several classic acts including The Rolling Stones, Santana, Tom Petty, Johnny Cash, and Bob Dylan, for Xbox 360, PLAYSTATION 3, Wii, and PlayStation 2 system.Release date not specified.
  • Tony Hawk: RIDE comes with a wireless skateboard controller and utilizes full motion sensing technology to enable the  player to control the action by performing various movements and gestures on the board that directly translate into skateboard maneuvers that are displayed onscreen, for Xbox 360, PLAYSTATION 3, and Wii. Release date not specified.
  • Ultimate Alliance 2 incorporates elements of the Marvel “Civil War” storyline, enabling players to choose their side and team up with such heroes and villains as Spider-Man, Wolverine, Hulk, Iron Man, Deadpool, Venom, Green Goblin and Captain America, for Xbox 360, PLAYSTATION 3, Wii, PlayStation 2, PlayStation Portable, and Nintendo DS™.Release date not specified.

Evidently, the lack of a mention of Starcraft II ensures it will not be released in 2009. Announced in 2007 and expected in 2008, the sequel to Blizzard’s 1994 real-time strategy game—which is still actively played online—will presumably require a large beta test before it is ready to be released, and there is no word on when that might start, either.

There is some WoW news from China, however. In the wake of Blizzard’s decision not to renew their WoW contract with The9 (NCTY} and instead strike a deal with Netease.com (NTES) last month, The9 have now filed suit in China against Activision Blizzard for property loss compensation and commercial defamation. Earlier this month, rumors surfaced that The9 are preparing a W0W clone game for release. Reportedly, The9 had agreed to cooperate with Netease.com to effect a smooth transition of the 1 million-plus Chinese WoW players from the former’s servers to the latter’s—The9’s license to run WoW games expires in June—but it is not clear how these latest developments may affect that situation. In the meantime, some Chinese WoW players, frustrated at the continued long delay in the deployment of the “Wrath of the Lich King” WoW upgrade module, have reportedly “defected” to Taiwanese WoW servers, where the upgrade has long since been installed. This is a real soap opera; stay tuned.

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Activision Blizzard (ATVI) update #2—“unleash your inner rock star”

Posted by intelledgement on Tue, 31 Mar 09

As promised, our gaming company Activision Blizzard (ATVI) released two games in the last week: Monsters vs. Aliens™, based on DreamWorks Animation’s (DWA’s) 3D movie of the same name—which itself hit the theaters last Friday—and Guitar Hero® Metallica®, the latest expansion of that blockbuster franchise. And in concert (if you will pardon the expression) with March Madness, here is one of the ads ATVI are using to promote the Metallica release:

LOL we saw Bobby Knight playing Guitar Hero at Metallica—his hair was perfect.

Also last week, Activision Blizzard announced the November release of Call of Duty® Modern Warfare® 2. This is a sequel to the best-selling first-person action game of all time, Call of Duty® 4: Modern Warfare™, which has sold more than 12 million copies worldwide, to date. The one disappointment is that with Modern Warfare 2 now set to come out so late in the year, it does not appear as if Activision Blizzard are expecting to release Starcraft II in 2009, afterall.

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Activision Blizzard (ATVI) update—4Q08 results

Posted by intelledgement on Wed, 11 Feb 09

Our interactive entertainment company, Activision Blizzard, today announced their full year 2008 and 4Q08 results and the bottom line was…well…it depends.

The results are somewhat muddied by the Activision-Vivendi merger that was announced late in 2007 and which closed last July. On a generally-accepted-accounting-principles (GAAP) basis, the combined company had $3.0 billion in revenues for the year, and a loss of $200 million; the figures for 4Q08 were $1.6 billion in revenues and a loss of $72 million. However, the company also reported non-GAAP numbers which excluded the effects of the merger, and those were materially sunnier: full year revenues of $5.0 billion (which edged out the estimate of $4.9 billion) and earnings of $1.2 billion (in line with estimates). Non-GAAP revenues for 4Q08 amounted to $2.3 billion (again edging out the estimate of $2.2 billion) and earnings were $429 million or 31 cents per share (beating out the estimate of 29 cents per share).

Aside from the fact that the stock was down 42%, 2008 was a pretty good year. Of course the highlight was the merger that added Blizzard’s World of Warcraft massively multiplayer online role-playing game to the stable. On that front, Activision Blizzard CEO Robert Kotick commented, “[W]e successfully achieved our merger restructuring goals, including the elimination of unprofitable product lines, right sizing our organization and integrating disparate accounting and IT systems, all with minimal disruption to our business.” But there was a lot more to the year:

  • #1 third-party console and handheld software publisher in North America for 2008
  • #1 best-selling title on the Nintendo® DS, Guitar Hero® On Tour™ in the USA for 2008
  • #1 console, handheld, and PC publisher in the U.S. and Europe for 4Q08
  • Guitar Hero® III: Legends of Rock™ became the first video game ever to surpass $1 billion in sales
  • World of Warcraft® is now played by more than 11.5 million subscribers worldwide
  • $126 million—13 million shares—of common stock were repurchased at an average price of $9.68 under the $1 billion share repurchase program announced in November

As for 2009, ATVI management are projecting For calendar 2009, revenues of $4.2 billion, and a profit of 22¢ per share, including $860 million of revenues and 8¢ of profits in 1Q09. They also expect to release two games in March: Guitar Hero® Metallica® and Monsters vs. Aliens™, based on DreamWorks Animation’s (DWA’s) forthcoming 3D movie.

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