Activision Blizzard Inc.
) reported earnings of 76 cents in the fourth quarter of 2013,
which comfortably beat the Zacks Consensus Estimate by 6 cents.
Earnings (including stock-based compensation but excluding
one-time items) improved 1.3% from the year-ago quarter.
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Revenues (excluding net-effect of deferred revenues) decreased
12.4% year over year to $2.27 billion. However, revenues managed
to beat both the management's guidance and the Zacks Consensus
Estimate of $2.2 billion.
Robust performance from
Call of Duty
World of Warcraft
and the launch of
on consoles helped revenues to surpass the consensus mark and
Segment wise, revenues from Activision Publishing were down 16.0%
from the year-ago quarter to $1.8 billion. Blizzard Entertainment
and its subsidiaries' revenues slumped 7.0% year over year to
$287.0 million. Revenues from Activision's Distribution segment
increased 29.0% from the year-ago quarter to $180.0 million.
Activision reported retail sales of $1.7 billion (down 16.3% year
over year) and digital online revenues of $353.0 million (down
6.6% from the year-ago quarter), which comprised 92.0% of the
revenues in the quarter.
On a geographical basis, revenues from North America, Europe and
Asia-Pacific declined 13.0%, 12.0% and 11.0%, respectively, on a
Total costs and expenses (including stock-based compensation but
excluding amortization and net effect of deferrals) as a
percentage of revenues increased 480 basis points (bps) on a year
over year basis to 54.3% in the last quarter.
The modest increase was due to higher product development (up 10
bps), sales & marketing (up 160 bps) and general &
administrative expenses (up 60 bps) in the quarter.
As a result, operating margin declined a modest 30 bps in the
quarter. Net income margin was 26.3% compared with 32.9% in the
Activision exited the fourth quarter with $4.44 billion in cash
and short-term investments versus $6.82 billion in the previous
quarter. The long-term debt amount stands at $4.67 billion versus
no debt in the year-ago quarter. Operating cash flow was $880.0
million in the reported quarter compared to capital usage of
$50.0 million in the prior quarter.
For the first quarter, Activision expects non-GAAP revenues of
$675.0 million (down from the prior outlook of $2.22 billion).
Earnings are expected to be 9 cents per share as against the
Zacks Consensus Estimate which is pegged at 8 cents per share.
The company raised its full year revenue guidance to $4.60
billion (from the prior outlook of $4.29 billion) based on strong
performance from its major franchises, strong sales of
Call of Duty: Black Ops
, strong product pipeline and expected higher consumer spending
on new consoles during the holiday season.
For full year 2014, Activision expects earnings of $1.26, while
the Zacks Consensus Estimate is pegged at $1.20 per share. The
company remains positive on 2014 as it plans to release a number
of new gaming titles based on
Call of Duty
We believe that Activision is well positioned to gain from the
upcoming console releases due to its superior product offering
compared to rivals such as
Glu Mobile Inc
). However, management's cautious approach is commendable due to
volatility associated with the console transition cycle.
In 2014, the company plans to launch Hearthstone on tablets and
smartphones. In many countries, the mobile Internet is the
fastest growing interactive entertainment platform and we firmly
believe that Hearthstone is well positioned for success.
We believe that the new games have the potential to be among the
largest and most profitable in their respective spheres and would
enhance profitability going forward.
Additionally, Activision's limited presence in the mobile gaming
segment, higher adoption of free-to-play games and significant
competition are the major headwinds in the near term.
Currently, Activision Blizzard has a Zacks Rank #3 (Hold).