Activision Blizzard Inc.
) reported robust fourth quarter non-GAAP earnings of 78 cents,
which increased 25.8% from the year-ago quarter. Including
stock-based compensation of 3 cents, earnings of 75 cents handily
beat the Zacks Consensus Estimate of 69 cents.
Revenues on a non-GAAP basis jumped 7.8% from the year-ago
quarter to $2.59 billion. Reported revenues were significantly
ahead of management's guidance of $2.41 billion and also
surpassed the Zacks Consensus Estimate of $2.44 billion. The
better-than-expected revenue growth was primarily attributed to
solid performance from the
Call of Duty
The quarterly revenues were also positively impacted by strong
retail (up 10% year over year) as well as digital online revenues
(up 22% year over year), which more than offset the lower
revenues from the distribution segment (down 31% year over
Segment wise, revenues from Activision Publishing increased
11% from the year-ago quarter to $2.15 billion. Blizzard
Entertainment and its subsidiaries' revenues increased 12% from
the prior-year quarter to $310 million.
On a geographical basis, revenues from North America, Europe
and Asia Pacific reported year-over-year increase of 11%, 2% and
Total costs and expenses on a non-GAAP basis (excluding
stock-based compensation and amortization and net effect of
deferrals) decreased 5.1% year over year to $1.44 billion,
primarily due to 17.6% decrease in sales and marketing expenses
and 3.6% drop in the product development expenses.
Operating income on a non-GAAP basis (excluding stock-based
compensation and amortization and net effect of deferrals) spiked
29.7% to $1.15 billion from the year-ago quarter. Operating
margin expanded 760 basis points ("bps") from the previous-year
quarter to 44.5%, driven by favorable product mix and
However, including stock-based compensation, operating income
came in at $1.11 billion while operating margin was 42.9%.
Net income on a non-GAAP basis (excluding stock-based
compensation and amortization and net effect of deferrals) was
$891 million in the quarter compared with $725 million in the
year-ago quarter. Including stock based compensation, net income
stood at $853 million.
Activision exited the fourth quarter with $4.38 billion in
cash and cash equivalents and short-term investments versus $3.36
billion in the previous quarter. The company did not have any
long-term debt in its balance sheet.
For the first quarter of 2013, Activision expects non-GAAP
earnings of 10 cents per share on revenues of $690 million. For
fiscal 2013, Activision Blizzard expects to generate non-GAAP
revenues of $4.175 billion and earn 80 cents per share.
The company plans to launch
StarCraft II: Heart of the Swarm
on Mar 12. Moreover, the company expects its product line to be
based on its four franchise -
Call of Duty
World of Warcraft
. Apart from these, Activision expects to invest in new IPs and
develop Bungie's new universe.
However, the company remains cautious regarding fiscal 2013
due to volatile macro economic environment coupled with
uncertainly related to the console transition and tough
We believe that Activision's product portfolio will boost
top-line growth over the long term. Activision's expansion in
China to offer
Call of Duty
online bodes well with the company's long-term prospects.
Moreover, the company's product pipe line remains strong with new
installments from the
Call of Duty
expansion packs. Moreover, Blizzard Entertainment is expected to
come up with an all new MMO game in 2013.
However, continued softness in the video game industry,
limited presence in the mobile gaming segment, higher adoption of
free-to-play games and significant competition from
Take-Two Interactive Software
) are the major headwinds going forward. Moreover, continued
investments in new products are expected to hurt margins in the
Currently, Activision Blizzard has a Zacks Rank #4 (Sell).
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