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Activision Blizzard, the largest independent maker of video games, announced that it had better-than-expected quarterly earnings for the third quarter. That’s a bit of a surprise since recession fears have dogged the company, as well as rumors that some of its games were not selling well.
The company credited a good reception for its major franchise games: Guitar Hero 5, Marvel: Ultimate Alliance 2, and its World of Warcraft online subscription game.
Revenues for the quarter were $703 million (GAAP), compared with its outlook of $680 million. On a non-GAAP basis, revenues were $755 million, compared with its outlook of $700 million. GAAP earnings per share were 1 cent, compared with its previously forecast number of 3 cents a share loss. Non-GAAP earnings per share were 4 cents, compared to non-GAAP EPS expectations of 3 cents a share.
Even with the good results, chief executive Bobby Kotick warned in a conference call that unemployment remains historic highs and so the larger economy’s weakness makes predicting consumer behavior harder. The good thing, he says, is that the company’s line-up for the holiday season is anchored by four of the strongest franchises in the history of video games.
Analysts have been under the impression that music game sales have been weak. But in September, Activision Blizzard said that music game sales in the U.S. were up 72 percent compared to a year ago. Activision Blizzard also saw strong sales of Call of Duty World at War map packs, which extend the online playing experience of its older World at War game. To date, those map packs have sold 7.5 million units. Activision Blizzard believes it grew its U.S. market share from 13.3 percent a year ago to 16.4 percent in the third quarter.
Kotick said that the fourth quarter release schedule is strong with titles such as Bakugan Battle Brawlers, Band Hero, Infinity Ward’s Call of Duty: Modern Warfare 2, DJ Hero and Tony Hawk: RIDE. The company said its 2009 outlook remains unchanged. Modern Warfare 2 is expected to be the biggest game launch of the year when it hits stores next Tuesday.
“It could lead to a record level of consumption in sales and hours played compared to other forms of entertainment,” Kotick said.
The Tony Hawk: Ride game has a physical skateboard that comes with it. Gamers can stand on it and feel like they’re riding a real skateboard. Kotick said the two-year product development represents the largest investment the company has made in the franchise.
Blizzard Entertainment’s World of Warcraft, which has more than 11 million subscribers worldwide, relaunched in China on Sept. 19. The game has more than 4 million players in China, but the fate of the game is up in the air in China as one government agency, at war with another agency, declared that the game had to shut down paid play earlier this week. Activision Blizzard said one of its risk factors is the ability for its partner, NetEase.com, to continue operating a paid version of WoW in China without interruption. During the call, Blizzard chief Mike Morhaime refused to criticize the Chinese government for its move and said NetEase.com would do the communicating on the matter with the Chinese agency in question.
Overall software sales were lower than expected due to weakness on the Nintendo Wii, whose price wasn’t cut until the end of September. For 2009, the company expects to deliver GAAP revenues of $4.05 billion and GAAP earnings per share of 26 cents. On a non-GAAP basis, the company expects revenues of $4.5 billion and non-GAAP earnings per share of 63 cents.
For the fourth quarter, Activision Blizzard expects to deliver GAAP revenues of $1.33 billion and GAAP loss per share of 4 cents a share. On a non-GAAP basis, the company expects revenues of $2.22 billion and 43 cents per share in earnings. Software sales are likely to be flat compared to a year ago in the quarter. About 50 percent of sales in the fourth quarter are expected to happen in December.
In 2010, the company expects Blizzard will account for a lot of growth thanks to the launch of Starcraft II and an expansion pack for WoW, dubbed Cataclysm. But it declined to offer a specific forecast for next year.
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