First Quarter Net Bookings Grew 25%
Year-Over-Year
First Quarter Mobile Net Bookings Grew
Double-Digits Year-Over-Year
First Quarter GAAP Operating Income Grew
Approximately 70% Year-Over-Year, Segment Operating Income Grew
Approximately 30% Year-Over-Year
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced first
quarter 2023 results.
Bobby Kotick, CEO of Activision Blizzard, shared, "In our 33rd
year, Activision Blizzard is performing exceptionally well. Every
one of our key intellectual properties continues to grow
year-over-year, with Call of Duty once again a key driver of
growth. Mobile net bookings grew double digits including another
record quarter for King. Pre-sales for Diablo IV are strong. And
none of this would be possible without our people, who deliver
excellence for our players every single day. We remain confident
that our deal with Microsoft benefits competition, consumers, and
job creation in markets around the world, especially in the UK. The
CMA’s report today does not reflect these realities, and we will
work aggressively with Microsoft to reverse it on appeal."
Financial Metrics
Q1
(in millions, except EPS)
2023
2022
GAAP Net Revenues
$
2,383
$
1,768
Impact of GAAP deferralsA
$
(528
)
$
(287
)
GAAP EPS
$
0.93
$
0.50
Non-GAAP EPS
$
1.09
$
0.64
Impact of GAAP deferralsA
$
(0.49
)
$
(0.26
)
Please refer to the tables at the back of this earnings release
for a reconciliation of the company’s GAAP and non-GAAP
results.
For the quarter ended March 31, 2023, Activision Blizzard’s net
revenues presented in accordance with GAAP were $2.38 billion, as
compared with $1.77 billion for the first quarter of 2022. GAAP net
revenues from digital channels were $2.16 billion. GAAP operating
margin was 34%. GAAP earnings per diluted share was $0.93, as
compared with $0.50 for the first quarter of 2022. On a non-GAAP
basis, Activision Blizzard’s operating margin was 40% and earnings
per diluted share was $1.09, as compared with $0.64 for the first
quarter of 2022.
Activision Blizzard generated $577 million in operating cash
flow for the quarter as compared with $642 million for the first
quarter of 2022.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP and non-GAAP results.
Operating Metrics
For the quarter ended March 31, 2023, Activision Blizzard’s net
bookingsB were $1.86 billion, as compared with $1.48 billion for
the first quarter of 2022. In-game net bookingsC were $1.29
billion, as compared with $1.01 billion for the first quarter of
2022.
For the quarter ended March 31, 2023, overall Activision
Blizzard Monthly Active Users (MAUs)D were 368 million.
Microsoft Transaction
As announced on January 18, 2022, Microsoft plans to acquire
Activision Blizzard for $95.00 per share in an all-cash
transaction. The transaction has been approved by the boards of
directors of both Activision Blizzard and Microsoft and by
Activision Blizzard’s stockholders.
On April 26, 2023, the United Kingdom Competition and Markets
Authority ("CMA") announced a decision to block the merger, stating
that competition concerns arose in relation to cloud gaming and
that Microsoft’s remedies addressing any concerns in cloud gaming
were not sufficient. Activision Blizzard considers that the CMA’s
decision is disproportionate, irrational and inconsistent with the
evidence. Microsoft has announced its decision to appeal the CMA’s
ruling, and Activision Blizzard intends to fully support
Microsoft’s efforts on this appeal. Activision Blizzard continues
to believe that the deal is pro-competitive, will bring Activision
Blizzard content to more gamers, and will result in substantial
benefits to consumers and developers in the UK and globally. The
parties continue to fully engage with other regulators reviewing
the transaction to obtain any required regulatory approvals.
Conference Call and Earnings Presentation
In light of the proposed transaction with Microsoft, and as is
customary during the pendency of an acquisition, Activision
Blizzard will not be hosting a conference call, issuing an earnings
presentation, or providing detailed quantitative financial guidance
in conjunction with its first quarter 2023 earnings release. For
further detail and discussion of our financial performance, please
refer to Activision Blizzard's upcoming Quarterly Report on Form
10-Q for the quarter ended March 31, 2023.
Selected Business Highlights
Activision Blizzard continued to connect and engage the world
through epic entertainment in the first quarter. Our talented teams
are focused on delighting our communities and expanding our
fully-owned intellectual properties across platforms, geographies
and business models. Execution against our focused strategy fueled
25% growth in net bookings, approximately 70% growth in GAAP
operating income, and approximately 30% growth in segment operating
income, in each case on a year-over-year basis.
First quarter growth was broad-based, with net bookings
increasing year-over-year in each of our five largest intellectual
properties: Call of Duty®, Candy Crush®,
Warcraft®, Overwatch®, and Diablo®. We
continued to deliver strong results for our intellectual properties
on the strategically-important mobile platform, with mobile net
bookings growing double-digits year-over-year, driven by Candy
Crush, Call of Duty Mobile and last year's launch of
Diablo Immortal.
Our robust product pipeline, live game opportunity, and focus on
operational discipline continue to create a foundation for strong
financial performance for the full year. We remain cognizant of
risks, including those related to our execution, economic
conditions, the labor market and exchange rates, as well as
headwinds for our professional esports business model. Nonetheless,
we continue to expect at least high-teens year-over-year growth for
GAAP revenue in 2023, and at least high-single digit year-over-year
growth in net bookings and total segment operating income for the
year.
Demand indicators for Diablo IV, which launches on June
6, are strong, although we continue to plan prudently. We expect
Activision Blizzard second quarter GAAP revenue to grow at least
10%, net bookings to grow at least 30%, and total segment operating
income to grow at least 40%, in each case on a year-over-year
basis.
Activision
- Activision segment revenue grew 28% year-over-year in the first
quarter. Broad-based growth across Call of Duty drove
segment operating income to more than triple the year-ago
level.
- Building on the record-setting launch of Call of Duty:
Modern WarfareTM II last October, premium Call of Duty
game sales in the first quarter were significantly higher than in
the year-ago quarter. Activision’s expanded teams are delivering
substantial post-launch content for both the premium game and the
free-to-play WarzoneTM 2.0 experience. New content, modes
and gameplay enhancements have had a positive impact on engagement,
and Activision is planning more compelling live services for the
coming months.
- Call of Duty in-game net bookings on console and PC grew
strongly year-over-year in the first quarter. Call of Duty
Mobile net bookings also grew year-over-year, driven by
enhancements to the player experience and live operations.
- Activision’s teams are working hard on the next full annual
premium release in the blockbuster series and Call of Duty:
Warzone MobileTM, both slated for later this year. On June 20,
Activision will launch Crash Team Rumble, a team-based
brawler featuring characters from the beloved Crash universe, on
Xbox and PlayStation.
Blizzard
- Blizzard segment revenue increased 62% year-over-year in the
first quarter, with each of Warcraft, Overwatch and
Diablo contributing to growth. Segment operating income was
broadly stable year-over-year, reflecting higher development and
marketing costs, including launch investment ahead of the second
quarter release of Diablo IV.
- The Overwatch and World of Warcraft teams
delivered substantial in-game content and live operations to excite
and sustain their communities following major product launches in
the fourth quarter. Following the November release of the
DragonflightTM expansion for the Modern game, our World
of Warcraft team is delivering more content faster than ever
before, and subscriber retention in the West is higher than at the
equivalent stage of recent Modern expansions. While
Overwatch engagement moderated versus the Overwatch 2
launch quarter, hours played were approximately twice the levels
seen prior to the release of the free-to-play experience. Season 3,
which launched in February, drove strong retention and consistent
player investment versus the prior season.
- Diablo ImmortalTM on mobile and PC also contributed to
Blizzard’s first quarter net bookings growth, with the game
experiencing stable trends across engagement, retention and player
investment. Elsewhere on mobile, Warcraft: Arclight
RumbleTM, an action strategy game internally-developed at
Blizzard, continues to progress well through regional testing.
- Diablo IV, the next major installment in the
genre-defining series, will launch on PC and console on June 6.
Public testing of the game in March saw very high engagement and
positive feedback, and pre-sales are strong. This ambitious title
will serve as the launch for a compelling live service, with
regular seasons and story-driven expansions planned to drive
engagement for many years to come.
King
- In the quarter that marked its 20th anniversary, King continues
to deliver excellent financial performance, reflecting strong
execution and deep expertise in optimizing live operations and user
acquisition. First quarter segment revenue grew 8% year-over-year,
equivalent to low double-digit growth on a constant currency
basisE. King’s first quarter segment operating income was little
changed year-over-year due to increased investment in marketing,
which is expected to contribute to operating income growth in
future quarters.
- In-game net bookings increased 11% year-over-year, driven by
the Candy Crush franchise. King continues to launch and
optimize new seasonal content, features and events to engage its
community, and attract lapsed and new players. The March 23 launch
of the latest Candy Crush All Stars tournament, where
players compete in Candy Crush SagaTM for a chance to appear
in the live finals, drove incremental growth in installs and player
investment at the end of the first quarter and into April.
- Candy Crush payer numbers again grew year-over-year, and
Candy Crush was the top-grossing game franchise in the U.S.
app stores1 for the 23rd quarter in a row.
- Amid a weak macro environment for digital advertising, King
advertising revenue fell due to declines in business with partner
networks. King continues to invest in innovative ad product
offerings to fuel further growth in its direct business with brand
advertisers.
- King is already starting to see benefits from last June’s
acquisition of Peltarion, an AI company. Peltarion’s technology is
helping King to accelerate the production and testing of live
operations and to offer more relevant game content to players, with
the acquisition set to deliver a meaningful financial benefit in
its first full year.
Balance Sheet
- Cash and short-term investments at the end of the first quarter
stood at $12.6 billion, and Activision Blizzard ended the quarter
with a net cashF position of approximately $8.9 billion.
Activision Blizzard Disclosure Channels to Disseminate
Information
Activision Blizzard, Inc. (“Activision Blizzard”) discloses
information to the public concerning Activision Blizzard,
Activision Blizzard’s products, content and services, and other
items through a variety of disclosure channels in order to achieve
broad, non-exclusionary distribution of information to the public.
Some of the information distributed through these disclosure
channels may be considered material information. Investors and
others are encouraged to review the information we make public in
the locations below.2 This list may be updated from time to
time.
- For information concerning Activision Blizzard and its
products, content and services, please visit:
https://www.activisionblizzard.com.
- For information provided to the investment community, including
news releases, events and presentations, and filings with the U.S.
Securities and Exchange Commission, please visit:
https://investor.activision.com.
- For the latest information from Activision Blizzard, including
press releases and the Activision Blizzard blog, please visit:
https://www.activisionblizzard.com/newsroom.
- For additional information, please follow Activision Blizzard’s
and Lulu Cheng Meservey’s (Activision Blizzard’s Executive Vice
President, Corporate Affairs and Chief Communications Officer)
Twitter accounts: https://twitter.com/atvi_ab and
https://twitter.com/lulumeservey. Except with respect to
communications regarding Activision Blizzard, Ms. Meservey’s social
media communications from https://twitter.com/lulumeservey are
personal communications of Ms. Meservey and are not communications
on behalf of Activision Blizzard.
About Activision Blizzard
Our mission, to connect and engage the world through epic
entertainment, has never been more important. Through communities
rooted in our video games we enable hundreds of millions of people
to experience joy, thrill and achievement. We enable social
connections through the lens of fun, and we foster purpose and a
sense of accomplishment through healthy competition. Like sport,
but with greater accessibility, our players can find purpose and
meaning through competitive gaming. Video games, unlike any other
social or entertainment media, have the ability to break down the
barriers that can inhibit tolerance and understanding. Celebrating
differences is at the core of our culture and ensures we can create
games for players of diverse backgrounds in the 190 countries our
games are played.
As a member of the Fortune 500 and as a component company of the
S&P 500, we have an extraordinary track record of delivering
superior shareholder returns for over 30 years. Our sustained
success has enabled the company to support corporate social
responsibility initiatives that are directly tied to our games. As
an example, our Call of Duty Endowment has helped find employment
for over 100,000 veterans.
Learn more information about Activision Blizzard and how we
connect and engage the world through epic entertainment on the
company's website, www.activisionblizzard.com2.
1 Based on data.ai Intelligence
2 These corporate websites and social media channels, and the
contents thereof, are not incorporated by reference into this press
release nor deemed filed with the U.S. Securities and Exchange
Commission.
A Net effect of accounting treatment from revenue deferrals on
certain of our online-enabled products. Since certain of our games
are hosted online or include significant online functionality that
represents a separate performance obligation, we defer the
transaction price allocable to the online functionality from the
sale of these games and then recognize the attributable revenues
over the relevant estimated service periods, which are generally
less than a year. The related cost of revenues is deferred and
recognized as an expense as the related revenues are recognized.
Impact from changes in deferrals refers to the net effect from
revenue deferrals accounting treatment for the purposes of
revenues, along with, for the purposes of EPS, the related cost of
revenues deferrals treatment and the related tax impacts.
Internally, management excludes the impact of this change in
deferred revenues and related cost of revenues when evaluating the
company’s operating performance, when planning, forecasting and
analyzing future periods, and when assessing the performance of its
management team. Management believes this is appropriate because
doing so enables an analysis of performance based on the timing of
actual transactions with our customers. In addition, management
believes excluding the change in deferred revenues and the related
cost of revenues provides a much more timely indication of trends
in our operating results.
B Net bookings is an operating metric that is defined as the net
amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise,
and publisher incentives, among others, and is equal to net
revenues excluding the impact from deferrals.
C In-game net bookings primarily includes the net amount of
microtransactions and downloadable content sold during the period,
and is equal to in-game net revenues excluding the impact from
deferrals.
D Monthly Active User (“MAU”) Definition: We monitor MAUs as a
key measure of the overall size of our user base. MAUs are the
number of individuals who accessed a particular game in a given
month. We calculate average MAUs in a period by adding the total
number of MAUs in each of the months in a given period and dividing
that total by the number of months in the period. An individual who
accesses two of our games would be counted as two users. In
addition, due to technical limitations, for Activision and King, an
individual who accesses the same game on two platforms or devices
in the relevant period would be counted as two users. For Blizzard,
an individual who accesses the same game on two platforms or
devices in the relevant period would generally be counted as a
single user. In certain instances, we rely on third parties to
publish our games. In these instances, MAU data is based on
information provided to us by those third parties, or, if final
data is not available, reasonable estimates of MAUs for these
third-party published games.
E Year-over-year growth on a constant currency basis is
calculated by translating current quarter local currency amounts to
U.S. dollars based on prior period exchange rates. These amounts
are compared to the prior period to derive constant-currency
year-over-year performance. We present constant currency
information to provide a framework for assessing how our underlying
businesses performed excluding the effect of currency rate
fluctuations.
- Total net bookings increased by 25% year-over-year for the
first quarter of 2023. On a constant currency basis, total net
bookings increased 29% year-over-year for the first quarter of 2023
as currency rate changes negatively impacted year-over-year growth
in the quarter by 4 percentage points.
- Activision segment net revenues grew by 28% year-over-year,
Blizzard segment net revenues grew by 62%, and King segment net
revenues grew by 8% for the first quarter of 2023. On a constant
currency year-over-year basis, Activision segment net revenue grew
30%, Blizzard segment net revenue grew 67%, and King segment net
revenue grew 11% for the first quarter of 2023, as currency rate
changes negatively impacted Activision segment net revenue
year-over-growth by 2 percentage points, Blizzard segment net
revenue year-over-growth by 5 percentage points, and King segment
net revenue year-over-growth by 3 percentage points.
F Net cash is defined as cash and cash equivalents ($9.2B as of
March 31, 2023) and short-term investments ($3.4B as of March 31,
2023) minus gross debt ($3.7B as of March 31, 2023).
Non-GAAP Financial Measures: As a supplement to our
financial measures presented in accordance with U.S. Generally
Accepted Accounting Principles (“GAAP”), Activision Blizzard
presents certain non-GAAP measures of financial performance. These
non-GAAP financial measures are not intended to be considered in
isolation from, as a substitute for, or as more important than, the
financial information prepared and presented in accordance with
GAAP. In addition, these non-GAAP measures have limitations in that
they do not reflect all of the items associated with the company’s
results of operations as determined in accordance with GAAP.
Activision Blizzard provides net income (loss), earnings (loss)
per share, and operating margin data and guidance both including
(in accordance with GAAP) and excluding (non-GAAP) certain items.
When relevant, the company also provides constant currency
information to provide a framework for assessing how our underlying
businesses performed excluding the effect of currency rate
fluctuations. In addition, Activision Blizzard provides EBITDA
(defined as GAAP net income (loss) before interest (income)
expense, income taxes, depreciation, and amortization) and adjusted
EBITDA (defined as non-GAAP operating margin (see non-GAAP
financial measure below) before depreciation). The non-GAAP
financial measures exclude the following items, as applicable in
any given reporting period and our outlook:
- expenses related to share-based compensation, including
liability awards accounted for under ASC 718;
- the amortization of intangibles from purchase price
accounting;
- fees and other expenses related to mergers and acquisitions,
including related debt financings, and refinancing of long-term
debt, including penalties and the write off of unamortized discount
and deferred financing costs;
- restructuring and related charges;
- expenses related to the wind down of our partnership with
NetEase in China in regards to licenses covering the publication of
several Blizzard titles which expired in January 2023;
- other non-cash charges from reclassification of certain
cumulative translation adjustments into earnings as required by
GAAP;
- the income tax adjustments associated with any of the above
items (tax impact on non-GAAP pre-tax income is calculated under
the same accounting principles applied to the GAAP pre-tax income
under ASC 740, which employs an annual effective tax rate method to
the results); and
- significant discrete tax-related items, including amounts
related to changes in tax laws, amounts related to the potential or
final resolution of tax positions, and other unusual or unique
tax-related items and activities.
In the future, Activision Blizzard may also consider whether
other items should also be excluded in calculating the non-GAAP
financial measures used by the company. Management believes that
the presentation of these non-GAAP financial measures provides
investors with additional useful information to measure Activision
Blizzard’s financial and operating performance. In particular, the
measures facilitate comparison of operating performance between
periods and help investors to better understand the operating
results of Activision Blizzard by excluding certain items that may
not be indicative of the company’s core business, operating
results, or future outlook. Additionally, we consider quantitative
and qualitative factors in assessing whether to adjust for the
impact of items that may be significant or that could affect an
understanding of our ongoing financial and business performance or
trends. Internally, management uses these non-GAAP financial
measures, along with others, in assessing the company’s operating
results, and measuring compliance with the requirements of the
company’s debt financing agreements, as well as in planning and
forecasting.
Activision Blizzard’s non-GAAP financial measures are not based
on a comprehensive set of accounting rules or principles, and the
terms non-GAAP net income, non-GAAP earnings per share, non-GAAP
operating margin, and non-GAAP or adjusted EBITDA do not have a
standardized meaning. Therefore, other companies may use the same
or similarly named measures, but exclude different items, which may
not provide investors a comparable view of Activision Blizzard’s
performance in relation to other companies.
Management compensates for the limitations resulting from the
exclusion of these items by considering the impact of the items
separately and by considering Activision Blizzard’s GAAP, as well
as non-GAAP, results and outlook, and by presenting the most
comparable GAAP measures directly ahead of non-GAAP measures, and
by providing a reconciliation that indicates and describes the
adjustments made.
Cautionary Note Regarding Forward-looking Statements: The
statements contained herein that are not historical facts are
forward-looking statements including, but not limited to statements
about: (1) projections of revenues, expenses, income or loss,
earnings or loss per share, cash flow, or other financial items;
(2) statements of our plans and objectives, including those related
to releases of products or services; (3) statements of future
financial or operating performance, including the impact of tax
items thereon; (4) statements regarding the proposed transaction
between Activision Blizzard and Microsoft pursuant to the Agreement
and Plan of Merger, dated as of January 18, 2022, by and among
Activision Blizzard, Microsoft, and Anchorage Merger Sub Inc., a
wholly owned subsidiary of Microsoft (the “Merger Agreement” and
such transaction, “the proposed transaction with Microsoft”),
including any statements regarding the expected timetable for
completing the proposed transaction with Microsoft, the ability to
complete the proposed transaction with Microsoft, and the expected
benefits of the proposed transaction with Microsoft; and (5)
statements of assumptions underlying such statements. Activision
Blizzard, Inc. generally uses words such as “outlook,” “forecast,”
“will,” “could,” “should,” “would,” “to be,” “plan,” “aims,”
“believes,” “may,” “might,” “expects,” “intends,” “seeks,”
“anticipates,” “estimate,” “future,” “positioned,” “potential,”
“project,” “remain,” “scheduled,” “set to,” “subject to,”
“upcoming,” and the negative version of these words and other
similar words and expressions to help identify forward-looking
statements. Forward-looking statements are subject to business and
economic risks, reflect management’s current expectations,
estimates, and projections about our business, and are inherently
uncertain and difficult to predict.
We caution that a number of important factors, many of which are
beyond our control, could cause our actual future results and other
future circumstances to differ materially from those expressed in
any forward-looking statements. Such factors include, but are not
limited to: the risk that the proposed transaction with Microsoft
may not be completed in a timely manner or at all, which may
adversely affect our business and the price of our common stock;
the failure to satisfy the conditions to the consummation of the
proposed transaction with Microsoft, including the receipt of
certain governmental and regulatory approvals (which may or may not
be received on a timely basis or at all); the occurrence of any
event, change, or other circumstance that could give rise to the
termination of the Merger Agreement; the effect of the announcement
or pendency of the proposed transaction with Microsoft on our
business relationships, operating results, and business generally;
risks that the proposed transaction with Microsoft disrupts our
current plans and operations and potential difficulties in employee
retention and recruitment as a result of the proposed transaction
with Microsoft; risks related to diverting management’s attention
from ongoing business operations; the outcome of any legal
proceedings that have been or may be instituted against us related
to the Merger Agreement or the transactions contemplated thereby;
restrictions during the pendency of the proposed transaction with
Microsoft that may impact our ability to pursue certain business
opportunities or strategic transactions; uncertainty about current
and future economic conditions and other adverse changes in general
political conditions in any of the major countries in which we do
business; decline in demand for our products and services if
general economic conditions decline; fluctuations in currency
exchange rates; our ability to deliver popular, high-quality
content in a timely manner; negative impacts on our business
resulting from concerns regarding our workplace, including
associated legal proceedings; our ability to attract, retain, and
motivate skilled personnel; future impacts from COVID-19; the level
of demand for our games and products; our ability to meet customer
expectations with respect to our brands, games, services, and/or
business practices; competition; our reliance on a relatively small
number of franchises for a significant portion of our revenues and
profits; negative impacts from the results of collective
bargaining, legal proceedings related to unionization, or campaigns
by unions directed at our workforce; our ability to adapt to rapid
technological change and allocate our resources accordingly; the
increasing importance of digital sales and the risks of that
business model; our ability to effectively manage the scope and
complexity of our business, including risks related to our
professional esports business model; our reliance on third-party
platforms, which are also our competitors, for the distribution of
products; our dependence on the success and availability of video
game consoles manufactured by third parties and our ability to
develop commercially successful products for these consoles; the
increasing importance of free-to-play games and the risks of that
business model; the risks and uncertainties of conducting business
outside the U.S., including the need for regulatory approval to
operate, the relatively weaker protection for our intellectual
property rights, and the impact of cultural differences on consumer
preferences; insolvency or business failure of any of our business
partners; the importance of retail sales to our business and the
risks of that business model; any difficulties in integrating
acquired businesses or realizing the anticipated benefits of
strategic transactions; seasonality in the sale of our products;
fluctuation in our recurring business; the risk of distributors,
retailers, development, and licensing partners or other third
parties being unable to honor their commitments or otherwise
putting our brand at risk; our reliance on tools and technologies
owned by third parties; our use of open source software; risks
associated with undisclosed content or features in our games;
impact of objectionable consumer- or other third-party-created
content on our operating results or reputation; outages,
disruptions, or degradations in our services, products, and/or
technological infrastructure; cybersecurity-related attacks,
significant data breaches, fraudulent activity, or disruption of
our information technology systems or networks; significant
disruption during our live events; catastrophic events; climate
change; provisions in our corporate documents and Delaware state
law that could delay or prevent a change of control; other legal
proceedings; increasing regulation in key territories over our
business, products, and distribution; changes in government
regulation relating to the Internet; our compliance with evolving
data privacy laws and regulations; scrutiny regarding the
appropriateness of the content in our games and our ability to
receive target ratings for certain titles; changes in tax rates
and/or tax laws and exposure to additional tax liabilities; changes
in financial accounting standards or the application of existing or
future standards as our business evolves; and the other factors
included in Part I, Item 1A “Risk Factors” of our Annual Report on
Form 10-K for the year ended December 31, 2022, filed with the U.S.
Securities and Exchange Commission.
The forward-looking statements contained herein are based on
information available to Activision Blizzard, Inc. as of the date
of this filing, and we assume no obligation to update any such
forward-looking statements. Actual events or results may differ
from those expressed in forward-looking statements. As such, you
should not rely on forward-looking statements as predictions of
future events. We have based the forward-looking statements
contained herein primarily on our current expectations and
projections about future events and trends that we believe may
affect our business, financial condition, operating results,
prospects, strategy, and financial needs. These statements are not
guarantees of our future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our
control and may cause actual results to differ materially from
current expectations.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Amounts in millions)
Three Months Ended March
31,
2023
2022
Net revenues
Product sales
$
695
$
386
In-game, subscription, and other
revenues
1,688
1,382
Total net revenues
2,383
1,768
Costs and expenses
Cost of revenues—product sales:
Product costs
136
91
Software royalties and amortization
101
81
Cost of revenues—in-game, subscription,
and other:
Game operations and distribution costs
363
288
Software royalties and amortization
65
19
Product development
402
346
Sales and marketing
278
252
General and administrative
238
212
Total costs and expenses
1,583
1,289
Operating income
800
479
Interest expense from debt
27
27
Other (income) expense, net
(122
)
(13
)
Income before income tax expense
895
465
Income tax expense
155
70
Net income
$
740
$
395
Basic earnings per common share
$
0.94
$
0.51
Weighted average common shares
outstanding
785
780
Diluted earnings per common share
$
0.93
$
0.50
Weighted average common shares outstanding
assuming dilution
792
786
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in millions)
March 31, 2023
December 31, 2022
Assets
Current assets
Cash and cash equivalents
$
9,236
$
7,060
Held-to-maturity investments
3,280
4,932
Accounts receivable, net
764
1,204
Software development
715
640
Other current assets
524
633
Total current assets
14,519
14,469
Software development
622
641
Property and equipment, net
199
193
Deferred income taxes, net
1,180
1,201
Other assets
507
508
Intangible assets, net
437
442
Goodwill
9,929
9,929
Total assets
$
27,393
$
27,383
Liabilities and Shareholders'
Equity
Current liabilities
Accounts payable
$
177
$
324
Deferred revenues
1,653
2,088
Accrued expenses and other liabilities
987
1,143
Total current liabilities
2,817
3,555
Long-term debt, net
3,611
3,611
Deferred income taxes, net
32
158
Other liabilities
818
816
Total liabilities
7,278
8,140
Shareholders' equity
Common stock
—
—
Additional paid-in capital
12,396
12,260
Treasury stock
(5,563
)
(5,563
)
Retained earnings
13,911
13,171
Accumulated other comprehensive loss
(629
)
(625
)
Total shareholders’ equity
20,115
19,243
Total liabilities and shareholders’
equity
$
27,393
$
27,383
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
SUPPLEMENTAL CASH FLOW
INFORMATION
(Amounts in millions)
Three Months Ended
March 31,
June 30,
September 30,
December 31,
March 31,
Year over Year
2022
2022
2022
2022
2023
% Increase (Decrease)
Cash Flow Data
Operating Cash Flow
$
642
$
198
$
257
$
1,123
$
577
(10
) %
Capital Expenditures
15
37
15
24
37
147
Non-GAAP Free Cash Flow1
$
627
$
161
$
242
$
1,099
$
540
(14
)
Operating Cash Flow - TTM2
$
2,212
$
2,022
$
1,758
$
2,220
$
2,155
(3
)
Capital Expenditures - TTM2
73
96
88
91
113
55
Non-GAAP Free Cash Flow1 - TTM2
$
2,139
$
1,926
$
1,670
$
2,129
$
2,042
(5
) %
1
Non-GAAP free cash flow represents
operating cash flow minus capital expenditures.
2
TTM represents trailing twelve months.
Operating Cash Flow for three months ended June 30, 2021, three
months ended September 30, 2021, and three months ended December
31, 2021, were $388 million, $521 million, and $661 million,
respectively. Capital Expenditures for the three months ended June
30, 2021, three months ended September 30, 2021, and three months
ended December 31, 2021, were $14 million, $23 million, and $21
million, respectively.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 31,
2023
Net Revenues
Cost of Revenues— Product
Sales: Product Costs
Cost of Revenues— Product
Sales: Software Royalties and Amortization
Cost of Revenues—In-
game/Subs/Other: Game Operations and Distribution Costs
Cost of Revenues—In-
game/Subs/Other: Software Royalties and Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and
Expenses
GAAP Measurement
$
2,383
$
136
$
101
$
363
$
65
$
402
$
278
$
238
$
1,583
Share-based compensation1
—
—
(19
)
(1
)
(4
)
(54
)
(9
)
(37
)
(124
)
Amortization of intangible assets2
—
—
—
—
(3
)
—
—
(1
)
(4
)
Partnership wind down and related
costs3
—
—
—
—
—
—
—
(4
)
(4
)
Merger and acquisition-related fees and
other expenses4
—
—
—
—
—
—
—
(21
)
(21
)
Non-GAAP Measurement
$
2,383
$
136
$
82
$
362
$
58
$
348
$
269
$
175
$
1,430
Net effect of deferred revenues and
related cost of revenues5
$
(528
)
$
(20
)
$
(32
)
$
(7
)
$
2
$
—
$
—
$
—
$
(57
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
800
$
740
$
0.94
$
0.93
Share-based compensation1
124
124
0.16
0.16
Amortization of intangible assets2
4
4
0.01
0.01
Partnership wind down and related
costs3
4
4
—
—
Merger and acquisition-related fees and
other expenses4
21
21
0.03
0.03
Income tax impacts from items above6
—
(27
)
(0.04
)
(0.04
)
Non-GAAP Measurement
$
953
$
866
$
1.10
$
1.09
Net effect of deferred revenues and
related cost of revenues5
$
(471
)
$
(393
)
$
(0.50
)
$
(0.49
)
1
Reflects expenses related to share-based
compensation.
2
Reflects amortization of intangible assets
from purchase price accounting.
3
Reflects expenses related to the wind down
of our partnership with NetEase, Inc. ("NetEase") in Mainland China
in regards to licenses covering the publication of several Blizzard
titles which expired in January 2023.
4
Reflects fees and other expenses related
to our proposed transaction with Microsoft Corporation
("Microsoft"), primarily legal and advisory fees.
5
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online-enabled products,
including the effects of taxes.
6
Reflects the income tax impact associated
with the above items. Tax impact on non-GAAP pre-tax income is
calculated under the same accounting principles applied to the GAAP
pre-tax income under ASC 740, which employs an annual effective tax
rate method to the results.
The GAAP and non-GAAP earnings per share
information is presented as calculated. The sum of these measures,
as presented, may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP MEASURES
(Amounts in millions, except per share
data)
Three Months Ended March 31,
2022
Net Revenues
Cost of Revenues— Product
Sales: Product Costs
Cost of Revenues— Product
Sales: Software Royalties and Amortization
Cost of Revenues—In-
game/Subs/Other: Game Operations and Distribution Costs
Cost of Revenues—In-
game/Subs/Other: Software Royalties and Amortization
Product Development
Sales and Marketing
General and
Administrative
Total Costs and
Expenses
GAAP Measurement
$
1,768
$
91
$
81
$
288
$
19
$
346
$
252
$
212
$
1,289
Share-based compensation1
—
—
(4
)
(2
)
—
(53
)
(15
)
(24
)
(98
)
Amortization of intangible assets2
—
—
—
—
—
—
—
(2
)
(2
)
Restructuring and related costs3
—
—
—
—
—
—
—
2
2
Merger and acquisition-related fees and
other expenses4
—
—
—
—
—
—
—
(32
)
(32
)
Non-GAAP Measurement
$
1,768
$
91
$
77
$
286
$
19
$
293
$
237
$
156
$
1,159
Net effect of deferred revenues and
related cost of revenues5
$
(287
)
$
(14
)
$
(38
)
$
(2
)
$
2
$
—
$
—
$
—
$
(52
)
Operating Income
Net Income
Basic Earnings per
Share
Diluted Earnings per
Share
GAAP Measurement
$
479
$
395
$
0.51
$
0.50
Share-based compensation1
98
98
0.13
0.13
Amortization of intangible assets2
2
2
—
—
Restructuring and related costs3
(2
)
(2
)
—
—
Merger and acquisition-related fees and
other expenses4
32
32
0.04
0.04
Income tax impacts from items above6
—
(24
)
(0.03
)
(0.03
)
Non-GAAP Measurement
$
609
$
501
$
0.64
$
0.64
Net effect of deferred revenues and
related cost of revenues5
$
(235
)
$
(204
)
$
(0.26
)
$
(0.26
)
1
Reflects expenses related to share-based
compensation.
2
Reflects amortization of intangible assets
from purchase price accounting.
3
Reflects restructuring initiatives.
4
Reflects fees and other expenses related
to our proposed transaction with Microsoft, primarily legal and
advisory fees.
5
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online-enabled products,
including the effects of taxes.
6
Reflects the income tax impact associated
with the above items. Tax impact on non-GAAP pre-tax income is
calculated under the same accounting principles applied to the GAAP
pre-tax income under ASC 740, which employs an annual effective tax
rate method to the results.
The GAAP and non-GAAP earnings per share
information is presented as calculated. The sum of these measures,
as presented, may differ due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
(Amounts in millions)
Three Months Ended
March 31, 2023
$ Increase /
(Decrease)
Activision
Blizzard
King
Total
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
580
$
435
$
739
$
1,754
$
127
$
170
$
57
$
354
Intersegment net revenues1
—
8
—
8
—
(1
)
—
(1
)
Segment net revenues
$
580
$
443
$
739
$
1,762
$
127
$
169
$
57
$
353
Segment operating income
$
179
$
56
$
241
$
476
$
120
$
3
$
(2
)
$
121
Operating Margin
27.0
%
March 31, 2022
Activision
Blizzard
King
Total
Segment Net Revenues
Net revenues from external customers
$
453
$
265
$
682
$
1,400
Intersegment net revenues1
—
9
—
9
Segment net revenues
$
453
$
274
$
682
$
1,409
Segment operating income
$
59
$
53
$
243
$
355
Operating Margin
25.2
%
1
Intersegment revenues reflect licensing
and service fees charged between segments.
Our operating segments are consistent with the manner in which
our operations are reviewed and managed by our Chief Executive
Officer, who is our chief operating decision maker (“CODM”). The
CODM reviews segment performance exclusive of: the impact of the
change in deferred revenues and related cost of revenues with
respect to certain of our online-enabled games; share-based
compensation expense (including liability awards accounted for
under ASC 718); amortization of intangible assets as a result of
purchase price accounting; fees and other expenses (including legal
fees, costs, expenses and accruals) related to acquisitions,
associated integration activities, and financings; certain
restructuring and related costs; certain partnership wind down
related costs; and other non-cash charges. See the following
page for the reconciliation tables of segment revenues and
operating income to consolidated net revenues and consolidated
income before income tax expense.
Our operating segments are also consistent with our internal
organization structure, the way we assess operating performance and
allocate resources, and the availability of separate financial
information. We do not aggregate operating segments.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING SEGMENTS INFORMATION
(Amounts in millions)
Three Months Ended March
31,
2023
2022
Reconciliation to consolidated net
revenues:
Segment net revenues
$
1,762
$
1,409
Revenues from non-reportable segments1
101
81
Net effect from recognition (deferral) of
deferred net revenues2
528
287
Elimination of intersegment revenues3
(8
)
(9
)
Consolidated net revenues
$
2,383
$
1,768
Reconciliation to consolidated income
before income tax expense:
Segment operating income
$
476
$
355
Operating income (loss) from
non-reportable segments1
6
19
Net effect from recognition (deferral) of
deferred net revenues and related cost of revenues2
471
235
Share-based compensation expense4
(124
)
(98
)
Amortization of intangible assets
(4
)
(2
)
Restructuring and related costs5
—
2
Partnership wind down and related
costs6
(4
)
—
Merger and acquisition-related fees and
other expenses7
(21
)
(32
)
Consolidated operating income
800
479
Interest expense from debt
27
27
Other (income) expense, net
(122
)
(13
)
Consolidated income before income tax
expense
$
895
$
465
1
Includes other income and expenses outside
of our reportable segments, including our distribution business and
unallocated corporate income and expenses.
2
Reflects the net effect from (deferral) of
revenues and recognition of deferred revenues, along with related
cost of revenues, on certain of our online-enabled products.
3
Intersegment revenues reflect licensing
and service fees charged between segments.
4
Reflects expenses related to share-based
compensation.
5
Reflects restructuring initiatives.
6
Reflects expenses related to the wind down
of our partnership with NetEase in Mainland China in regards to
licenses covering the publication of several Blizzard titles which
expired in January 2023.
7
Reflects fees and other expenses related
to our proposed transaction with Microsoft, primarily legal and
advisory fees.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
(Amounts in millions)
Three Months Ended
March 31, 2023
March 31, 2022
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Distribution
Channel
Digital online channels2
$
2,157
91
%
$
1,589
90
%
$
568
36
%
Retail channels
104
4
85
5
19
22
Other3
122
5
94
5
28
30
Total consolidated net revenues
$
2,383
100
%
$
1,768
100
%
$
615
35
Change in deferred revenues4
Digital online channels2
$
(448
)
$
(222
)
Retail channels
(69
)
(64
)
Other3
(11
)
(1
)
Total changes in deferred revenues
$
(528
)
$
(287
)
1
The percentages of total are presented as
calculated. Therefore, the sum of these percentages, as presented,
may differ due to the impact of rounding.
2
Net revenues from Digital online channels
represent revenues from digitally-distributed downloadable content,
microtransactions, subscriptions, and products, as well as
licensing royalties.
3
Net revenues from Other primarily include
revenues from our distribution business, the Overwatch League, and
the Call of Duty League.
4
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online-enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY PLATFORM
(Amounts in millions)
Three Months Ended
March 31, 2023
March 31, 2022
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Platform
Console
$
639
27
%
$
484
27
%
$
155
32
%
PC
666
28
383
22
283
74
Mobile and ancillary2
956
40
807
46
149
18
Other3
122
5
94
5
28
30
Total consolidated net revenues
$
2,383
100
%
$
1,768
100
%
$
615
35
Change in deferred revenues4
Console
$
(282
)
$
(221
)
PC
(203
)
(80
)
Mobile and ancillary2
(32
)
15
Other3
(11
)
(1
)
Total changes in deferred revenues
$
(528
)
$
(287
)
1
The percentages of total are
presented as calculated. Therefore, the sum of these percentages,
as presented, may differ due to the impact of rounding.
2
Net revenues from Mobile and
ancillary primarily include revenues from mobile devices.
3
Net revenues from Other primarily
include revenues from our distribution business, the Overwatch
League, and the Call of Duty League.
4
Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues on
certain of our online-enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC
REGION
(Amounts in millions)
Three Months Ended
March 31, 2023
March 31, 2022
$ Increase (Decrease)
% Increase (Decrease)
Amount
% of Total1
Amount
% of Total1
Net Revenues by Geographic
Region
Americas
$
1,378
58
%
$
1,016
57
%
$
362
36
%
EMEA2
699
29
527
30
172
33
Asia Pacific
306
13
225
13
81
36
Total consolidated net revenues
$
2,383
100
%
$
1,768
100
%
$
615
35
Change in deferred revenues3
Americas
$
(323
)
$
(174
)
EMEA2
(164
)
(93
)
Asia Pacific
(41
)
(20
)
Total changes in deferred revenues
$
(528
)
$
(287
)
1
The percentages of total are presented as
calculated. Therefore, the sum of these percentages, as presented,
may differ due to the impact of rounding.
2
Net revenues from EMEA consist of the
Europe, Middle East, and Africa geographic regions.
3
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online-enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
EBITDA AND ADJUSTED EBITDA
(Amounts in millions)
Trailing Twelve Months
Ended
June 30, 2022
September 30,
2022
December 31,
2022
March 31, 2023
March 31, 2023
GAAP Net Income
$
280
$
435
$
403
$
740
$
1,858
Interest expense from debt
27
27
27
27
108
Other income (expense), net
(10
)
(42
)
(117
)
(122
)
(291
)
Provision for income taxes
41
65
55
155
316
Depreciation and amortization
25
29
28
21
103
EBITDA
363
514
396
821
2,094
Share-based compensation expense1
100
102
161
124
487
Restructuring and related costs2
(3
)
2
—
—
(1
)
Partnership wind down and related
costs3
—
—
27
4
31
Merger and acquisition-related fees and
other expenses4
16
10
10
21
57
Adjusted EBITDA
$
476
$
628
$
594
$
970
$
2,668
Change in deferred net revenues and
related cost of revenues5
$
(1
)
$
25
$
1,059
$
(471
)
$
612
1
Reflects expenses related to share-based
compensation.
2
Reflects restructuring initiatives.
3
Reflects expenses related to the wind down
of our partnership with NetEase in Mainland China in regards to
licenses covering the publication of several Blizzard titles which
expired in January 2023.
4
Reflects fees and other expenses related
to our proposed transaction with Microsoft, primarily legal and
advisory fees.
5
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues, along with related
cost of revenues, on certain of our online-enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
OPERATING METRICS
(Amounts in millions)
Net Bookings1
Three Months Ended March
31,
2023
2022
$ Increase (Decrease)
% Increase (Decrease)
Net bookings1
$
1,855
$
1,481
$
374
25
%
In-game net bookings2
$
1,289
$
1,011
$
278
27
%
1
We monitor net bookings as a key operating
metric in evaluating the performance of our business because it
enables an analysis of performance based on the timing of actual
transactions with our customers and provides more timely
indications of trends in our operating results. Net bookings is the
net amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise,
and publisher incentives, among others. Net bookings is equal to
net revenues excluding the impact from deferrals.
2
In-game net bookings primarily includes
the net amount of downloadable content and microtransactions sold
during the period, and is equal to in-game net revenues excluding
the impact from deferrals.
Monthly Active Users3
March 31, 2022
June 30, 2022
September 30, 2022
December 31, 2022
March 31, 2023
Activision
100
94
97
111
98
Blizzard
22
27
31
45
27
King
250
240
240
233
243
Total MAUs
372
361
368
389
368
3
We monitor monthly active users (“MAUs”)
as a key measure of the overall size of our user base. MAUs are the
number of individuals who accessed a particular game in a given
month. We calculate average MAUs in a period by adding the total
number of MAUs in each of the months in a given period and dividing
that total by the number of months in the period. An individual who
accesses two of our games would be counted as two users. In
addition, due to technical limitations, for Activision and King, an
individual who accesses the same game on two platforms or devices
in the relevant period would be counted as two users. For Blizzard,
an individual who accesses the same game on two platforms or
devices in the relevant period would generally be counted as a
single user. In certain instances, we rely on third parties to
publish our games. In these instances, MAU data is based on
information provided to us by those third parties, or, if final
data is not available, reasonable estimates of MAUs for these
third-party published games.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230425006204/en/
Activision Blizzard, Inc.
Investors and Analysts: ir@activisionblizzard.com or Press:
pr@activisionblizzard.com
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