Activision Blizzard Inc. Posts Strong Earnings Despite Slumping "World of Warcraft"

By Markets Fool.com

Video-game publishing giant Activision Blizzard today posted first-quarter earnings results. And despite a light release schedule and weak results from one of its tentpole frachises, the company put up solid numbers.

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Both profit and sales came in above Wall Street's expectations:

Metric Expected Actual
Revenue $655 million $703 million
Profit $0.07 per share $0.16 per share

Expected is the average target of the 19 analysts covering Activision. Source: Yahoo! Finance.

Digital growth
Sales were higher than management's February forecast because of surging revenue from digital channels. Downloadable content and subscription sales reached $581 million, up 53% year over year. Not only did that set a new record for the company in absolute terms, but it also set a new high as a percentage of total sales. Digital revenue now makes up just below half of the publisher's sales stream.

That digital growth is impressive, given that Activision didn't get much help from its blockbuster World of Warcraft franchise. In fact, the game's subscriber base plummeted to 7 million users in the first quarter -- 3 million fewer than were active at the end of 2014.

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Activision's Warcraft expansion led to a spike in users last year, but also a big drop to start 2015.

However, Activision made up for that drop with several new revenue sources, including fresh franchises Destiny and Hearthstone. Combined, these games have powered $1 billion in sales to date and now boast 50 million registered players, management said.

As a result of that success, the Blizzard side of the business is sitting on its biggest player base yet, even as World of Warcraft fades. "This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter," CEO Bobby Kotick said in a press release accompanying the results.

Busy schedule, bright 2015
Activision has a packed release schedule for the rest of the year that includes a potentially popular relaunch of the Guitar Hero franchise in the fall. And of course, the new Call of Duty installment will probably top video-game charts for yet another year.

But the key difference between 2015 and 2014, besides digital revenue, will be diversification. Activision now counts close to a dozen AAA franchises in its portfolio, up from just four less than two years ago. Investors saw the benefit of that deeper catalog this quarter as a slumping World of Warcraft didn't derail results.

Management's updated full-year outlook was just below Wall Street expectations. Still, it includes higher profit and sales targets than the executive team projected three months ago. Revenue is now forecast to reach $4.4 billion as earnings climb to $1.20 per share in 2015.

The article Activision Blizzard Inc. Posts Strong Earnings Despite Slumping "World of Warcraft" originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Activision Blizzard and Apple. The Motley Fool recommends Activision Blizzard and Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.