Activision Blizzard bookings fall 3% to $1.83B in Q3

Activision Blizzard reported that its bookings for the third quarter ended September 30 fell 3% to $1.83 billion compared to a year ago. But that news was overshadowed by some positive news this morning: In Q4 so far, Call of Duty: Modern Warfare II has sold more than $1 billion worth in its first 10 days on the market.

Analysts had expected the Santa Monica, California-based company to hit bookings of $1.7 billion for the quarter. Activision confirmed it will have a premium Call of Duty game launching in 2023.

Activision Blizzard’s net bookings were $1.83 billion, as compared with $1.88 billion for the third quarter of 2021.

For the quarter ended September 30, 2022, overall Activision Blizzard monthly active users (MAUs) were 368 million, down from 390 million a year earlier.

The company also reiterated it expects that its sale to Microsoft for $68.5 billion at $95 a share will close by the end of Microsoft’s fiscal year on June 30, 2023.

“Our games are the result of passion and excellence. This comes from an environment that fosters inspiration, creativity, and an unwavering commitment to develop and support our talent. Our employees’
dedication and teamwork are at the heart of an extraordinary workplace that enables the magic embodied in our games,” said Bobby Kotick, CEO of Activision Blizzard, in a statement. “We look forward to continuing to release epic entertainment in service of our global community of players as a part of Microsoft, one of the world’s most admired companies. We continue to expect that our transaction will close in Microsoft’s current fiscal year ending June 2023.”

During the quarter, the King mobile gaming division saw double-digit growth, and Overwatch 2 got off to a good start as the free-to-play game saw 35 million players in its first month since its launch on October 4. The number of daily players is over twice that of the original title, and engagement is strong.

Regarding the fourth quarter results, Activision Blizzard said that engagement is incredible with the new Modern Warfare II, with hours played exceeding any other Call of Duty game launch by 40%.

On the Blizzard Entertainment side, the company said its agreement for publishing games in China is coming up for renewal in January, and it said a “mutually acceptable agreement may not be reached,” a reference to its deal primarily to publish World of Warcraft with China’s NetEase. There are a couple of other games in the China agreement as well. The co-development and publishing of Diablo Immortal is covered by a separate long-term agreement.

GAAP net revenues were $1.78 billion in the third quarter, compared with $2.07 billion a year earlier. GAAP earnings per share were 55 cents, compared to 82 cents a year ago. Non-GAAP earnings per share were 68 cents, compared to 89 cents a year earlier.

GAAP net revenues from digital channels were $1.61 billion. GAAP operating margin was 27%.

Expectations

As for risks, the company said it remains cognizant of risks including those related to the labor market and economic conditions, but it expects to expand its global audience, deepen community engagement, and deliver renewed growth in player investment in the fourth quarter and beyond.

The company expects fourth-quarter GAAP revenue to be 5% lower year-over-year or better. Net bookings and total segment operating income are each expected to grow at least 20% year-over-year.

Third-quarter net bookings declined 3% year-over-year on a reported basis and were slightly higher year-over-year on a constant currency basis. The company continued to deliver strong results on the strategically important mobile platform, with mobile net bookings growing over 20% year-over-year to approximately $1.0 billion.

Third-quarter segment operating income increased versus the second quarter for each of Activision, Blizzard and King.

“Activision Blizzard is benefiting from stable or improving trends in each of its three business units,” said Colin Sebastian, an analyst at RW Baird, in a research note. “Beyond the early success of Call of Duty MWII, we note impressive results for King/Mobile in the face of industry headwinds (platform, macro), and Blizzard poised to benefit from significant growth from recent and upcoming product launches. While the current share price embeds a probability weighting of the purchase by Microsoft gaining approval, we note that ongoing strong execution and sales performance bode well for earnings growth with or without deal completion.”

Activision

Since its October 28 launch, Call of Duty: Modern Warfare II has set new records for the largest franchise, becoming the fastest premium Call of Duty release to cross $1 billion in sell-through. Sales have been robust across all platforms, including on PC, where unit sell-through to date is about twice the level of recent strong titles in the series.

Modern Warfare II has set new franchise engagement records for a premium Call of Duty release, with hours played in the first 10 days more than 40% above the prior franchise record.

On November 16, alongside the first season of in-game content for Modern Warfare II, Activision will release Call of Duty: Warzone 2.0. This all-new, free-to-play Call of Duty experience encompasses a wide array of learnings gained from the highly successful original Warzone, which had more than 125 million players.

Tightly integrated with the premium game via a common game engine, Warzone 2.0 extends the Modern Warfare universe while bringing new sandbox experiences to the franchise from day one, with further content planned for the coming months.

In the third quarter, Activision also unveiled Call of Duty: Warzone Mobile, planned for full release in 2023. Internally developed on the same engine as Modern Warfare II and Warzone 2.0, the game will offer compelling battle royale gameplay on mobile as well as shared social features and cross-progression with the console. Over 20 million people have already pre-registered for the Warzone Mobile game on Google Play.

Activision is looking forward to building on its current momentum in 2023, with plans for next year including the most robust Call of Duty live operations to date, the next full premium release in the blockbuster annual series, and even more engaging free-to-play experiences across platforms.

Activision’s third-quarter financial performance was lower year-over-year, primarily reflecting reduced engagement for Call of Duty following the weaker reception for last year’s premium release. In-game net bookings on console and PC again grew sequentially in the third quarter versus the second quarter, contributing to sequential growth in segment operating income. Segment revenue and operating income are expected to return to strong year-over-year growth in the fourth quarter following the successful launch of Modern Warfare II.

Blizzard

October 4 saw the global launch of Overwatch 2, with a free-to-play model designed to allow more people than ever before to experience the acclaimed team-based action game. Over 35 million people played the game in its first month, including many who were new to Overwatch.

The expanded community is engaging deeply, with average daily player numbers for the first month of Overwatch 2 more than double that of its acclaimed predecessor. Player investment is also off to a strong start, positioning the title to be a meaningful contributor to Blizzard’s business in the fourth quarter.

Blizzard is looking forward to delivering an ambitious slate of regular seasonal updates for Overwatch 2 that introduce new characters, maps and modes, including the game’s anticipated PvE mode planned for 2023.

In the Warcraft franchise, the September 26 release of World of Warcraft: Wrath of the Lich King Classic contributed to a strong increase in WoW reach and engagement at the end of the third quarter. On November 28, Blizzard will release World of Warcraft: Dragonflight, the innovative next expansion for the modern game, as the team increases the cadence of WoW content for the community.

Elsewhere in the Warcraft franchise, the mobile title Warcraft: Arclight Rumble is progressing well through regional testing. On mobile, Diablo Immortal expanded its global reach with a strong launch in China in
July. The title reached the top of the download charts and has ranked in the top 10 grossing mobile games in China since its launch.

Around the world, Diablo Immortal is being supported with new content, features, and events aimed at keeping the community engaged. Meanwhile, work on Diablo IV and its substantial ongoing post-launch content continues to progress very well ahead of its launch planned for 2023.

Blizzard’s third quarter segment revenue grew double-digits year-over-year against a year ago quarter that included the release of Diablo II: Resurrected. The third quarter benefited from the recent launch of Diablo Immortal, while Warcraft franchise net bookings were stable year-over-year. Segment operating margin was lower year-over-year, due to marketing investment to support the strong release slate and the shift in the mix of business in the quarter.

King

King’s in-game net bookings increased 8% year-over-year, driven by the Candy Crush franchise, reflecting ongoing strong execution across live operations and user acquisition. King’s payer numbers again increased by a double-digit percentage year-over-year.

King continues to introduce more player-versus-player features within Candy Crush, fueling engagement and player investment. Time spent within Candy grew year-over-year for a fifth successive quarter, and Candy Crush was the top-grossing game franchise in the U.S. app stores for the 21 quarter in a row.

King’s third quarter segment revenue grew 6% year-over-year, equivalent to low double-digit growth on a constant currency basis. Advertising revenue was consistent year-over-year despite a challenging macro environment. King’s third-quarter operating margin was lower year-over-year, due to the year-ago quarter benefiting from insurance claim proceeds.

This November marks the 10-year anniversary of Candy Crush Saga, the original and largest title in the Candy Crush franchise. Candy Crush enters its second decade in strong health, with over 200 million monthly active users and with player investment at record levels.

Cash and short-term investments at the end of the second quarter stood at $10.9 billion, and Activision Blizzard ended the quarter with a net cash position of approximately $7.3 billion. It has about 13,000 employees.