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Activision Blizzard, the biggest independent publisher of video games, reported financial results today that beat analysts’ expectations for its first fiscal quarter. The company also raised its forecast for revenues for the fiscal year.
The company has been riding high on sales of Call of Duty Black Ops, the 1960s combat shooting game that has dominated video game sales since November. The game is one of many Activision Blizzard titles that show video game entertainment has become a giant business and a cultural juggernaut, and the title is now the best-selling video game of all time after just five months on the market, the company said. Activision Blizzard shares are up 2 percent following the results in after-hours trading.
The Santa Monica, Calif.-based game publisher reported GAAP sales of $1.45 billion (up 12 percent) and earnings of $503 million (up 32 percent), or 42 cents a share. That compares to revenue of $1.31 billion and earnings of $381 million, or 30 cents a share, a year earlier. On a non-GAAP basis, earnings per share were 13 cents, compared to expectations of 8 cents a share on non-GAAP revenue of $668.3 million. The non-GAAP revenue came in at $755 million. Black Ops was the No. 1 title in the quarter.
“Interactive entertainment continues to see broader audience appeal and powerful positive trends in online game play and online distribution,” said Bobby Kotick, chief executive of Activision Blizzard. “Only a handful of franchises are likely to generate the vast majority of industry profits.”
Kotick said that digital revenues — such as revenue from online game World of Warcraft — were 50 percent of sales in the quarter. Digital revenues were up 30 percent from a year ago. He said the shift toward digital delivery of games is continuing across the whole company.
“We are just scratching the surface on the role digital delivery will play in our products and franchises,” Kotick said.
The company credited Black Ops and World of Warcraft for the strong results. The company also sold 1.4 million units of its First Strike map pack for Black Ops in the first 24 hours after its release in February. That “shattered” previous online downloadable content sales records, said Thomas Tippl, chief operating officer of Activision Blizzard.
Activision Blizzard will face a lot of challenges in 2011, since it will have tough comparisons to Call of Duty sales from a year ago and faces fresh competition from Electronic Arts, which is publishing Battlefield 3 this fall. Activision Blizzard also cut the production of its Guitar Hero line of video games after sales cratered in the music game segment. The company cut back a bunch of staff last quarter and as a result will shave $75 million off costs this year.
Still, Activision Blizzard has a perennial cash cow in Blizzard Entertainment’s World of Warcraft, an online fantasy role-playing world that has more than 12 million paying subscribers. The company continues to allocate its resources toward its biggest franchises such as World of Warcraft, Blizzard’s next massively multiplayer online game, Blizzard’s Diablo III titles, and other big games.
Black Ops players have logged more than 1.2 billion hours of online game play. Activision Blizzard said that Black Ops is now the top-selling video game of all time for the Xbox 360, the PlayStation 3, and the PC. The number of online players playing Black Ops is 33 percent higher than the number that played the prior year’s title, Call of Duty Modern Warfare 2, for the first five months after each game’s release. The number of quarterly downloads of Call of Duty Black Ops First Strike — the first map pack for Black Ops — was 20 percent higher than the first map pack for the prior game as well. On average, First Strike players have been playing 58 minutes a day in online games since Feb. 1. That compares to 55 minutes a day spent on Facebook.
Activision Blizzard is working on a new Call of Duty game and will release more details in the coming weeks. Once they launch, it will market them with the biggest marketing budget the company has ever had. One of the new Call of Duty titles will be a micro-transaction-based online game that will launch in China.
But the company’s main effort is creating a big splash with its console and stand-alone PC games based on the series. On that front, Activision Blizzard is creating a new Call of Duty digital platform, which will be a hub for Call of Duty fans much like Battle.net is a hub for StarCraft II fans.
The goal, Kotick said, is to make Call of Duty “the must-have entertainment experience of the year.”
In February, Activision Blizzard forecast adjusted earnings of 7 cents per share, and adjusted revenue of $640 million The company’s adjusted results exclude one-time charges and account for deferred revenue on games whose online components reap sales over a long time.
Right now, Blizzard does not know when it will ship its next big game, Diablo III. If it does not ship that game this year, however, Blizzard expects to ship two games next year, Tippl said. In 2011, Activision Blizzard expects GAAP revenue to be $4.05 billion, up $100 million from the prior outlook. EPS will be 61 cents, up 5 cents from earlier estimates. For the second quarter, Activision Blizzard expects revenue of $985 million and EPS of 19 cents. In the third quarter, the only major game launch will be an X-Men title.
Activision Blizzard said it is developing Skylander’s Spryo’s Adventure, a new universe focused on the “world of toys, video games, and the internet.” This game lets you buy toys separately for less than $10 each and then you can use codes to extend the experience online. The idea, Kotick said, is to “bring your toys to life.” Skylander’s is one of the biggest investments Activision Blizzard has ever made in a new intellectual property, Kotick said.
The company revealed the title at Toy Fair earlier this year and describes the game as bringing real world toys into the world of games and online. Users can play with the toys online. A portal transports the toy characters into the game. Then the results of that play are written back onto the toy’s memory so they can be exploited in offline play. The company has been working on this for more than two years with teams from the toy, game, and movie industries. The property will launch in the holiday season.
In the coming quarter, the company expects to have lower revenues in part because of a smaller product line-up and the outage of the PlayStation Network, which has been down since April 20. The Call of Duty Black Ops Escalation map pack is expected to launch on the PSN later this quarter.
One of the new titles being worked on is coming from Bungie, which for now is being referred to as “the new Bungie universe.” Bungie created the Halo series of blockbuster games for Microsoft and has since signed up with Activision Blizzard to create a new game series. Tippl said there are more online-enabled projects in the works than ever before.
Activision Publishing chief Eric Hirshberg estimates that there are 277 million Xbox 360, PlayStation 3 and Nintendo Wii consoles in the market in U.S. and Europe. That will be 312 million by the end of the year, the highest ever in gaming history. By year end, the number of online-connected PS 3 and Xbox 360 consoles will be 92 million, up 24 percent.
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