Activision Blizzard Inc.
) reported better-than-expected third quarter 2012 results,
beating the Zacks Consensus Estimate by a nickel. Further,
quarterly revenues were well ahead of the Zacks Consensus
Estimate of $708 million.
Revenues on non-GAAP basis (excluding revenues from deferral
and related cost of sales) jumped 20% year over year to $751
million and comfortably exceeded the company's guidance of $690
The year-over-year growth was primarily driven by robust
performance from the
World of Warcraft: Mists of Pandaria
(life to date revenue of $500 million). Moreover, continued
strong performance from
(year to date 10 million copies sold) and the
Call of Duty
franchise were also responsible for the top-line expansion.
The quarterly revenues were also positively impacted by strong
retail (up 65% year over year) as well as digital online revenues
(up 11% year over year), which more than offset the decline in
revenue from the distribution segment (down 30% year over
On operating basis, revenues from Activision Publishing
increased 12% from the previous-year quarter to $283 million.
Blizzard Entertainment and its subsidiaries' revenue increased
39% from the prior-year quarter to $414 million, primarily driven
's strong performance.
On a geographical basis, revenues from North America, Europe
and Asia Pacific reported yearly increase of 23%, 17% and 20%,
Total costs and expenses on non-GAAP basis (excluding stock
based compensation and amortization and net effect of deferrals)
increased 10.1% year over year to $597 million, due to 14.2%
increase in sales and marketing expenses and 2.2% increase in the
general and administrative expenses.
Operating income on a non-GAAP basis (excluding stock based
compensation and amortization and net effect of deferrals) soared
81.2% to $154 million from the year-ago quarter. Operating margin
expanded 690 basis points ("bps") from the previous-year quarter
to 20.5%, driven by productivity improvements.
However, including stock-based compensation, operating income
came at $120 million while operating margin was 16%.
Net income on non-GAAP basis (excluding stock based
compensation and amortization and net effect of deferrals) was
$168 million or 15 cents per share in the quarter, up from $87
million or 7 cents per share in the prior-year quarter.
Including stock-based compensation, net income was $145
million or 12 cents compared with $74 million or 6 cents in the
Activision exited the third quarter with $3.36 billion in cash
and cash equivalents and short-term investments, versus $3.19
billion in the previous quarter. The company did not have any
long-term debt in its balance sheet.
For the fourth quarter, Activision expects non-GAAP earnings
of 70 cents per share on revenues of $2.41 billion. Moreover,
Activision raised its fiscal 2012 outlook buoyed by the strong
third quarter results. Activision now expects to earn $1.10 per
share (up from 99 cents) on total revenues of $4.81 billion (up
from $4.63 billion) for the full year.
Activision expects its new title releases in October, namely
Cabela's Dangerous Hunts 2013
Cabela's Hunting Expeditions
to drive the results in the next quarter. Moreover, the expected
Call of Duty: Black Ops II
Family Guy: Back to the Multiverse
in November would be incrementally beneficial for the company to
achieve its forecasted results.
However, Activision's 2013 outlook was a cautious one owing to
the ongoing sluggish macroeconomic scenario and a tough
year-over-year comparison due to the robust sales of
. Management expects to focus on the growing retail segment and
to remain cost effective.
We believe that Activision's expanding product portfolio will
boost top-line growth over the long term. The company is in the
process of reviving its popular old franchises such as StarCraft,
which are expected to drive customer engagement going
Moreover, Activision's partnership with Tencent in China to
Call of Duty
online bodes well with the company's long-term prospects. The
company has a strong product pipeline for the upcoming holiday
season, which would expectedly drive the top line in the near
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
Electronic Arts Inc.
Take-Two Interactive Software Inc.
) are the major headwinds going forward.
We prefer to remain on the sidelines due to these concerns and
maintain our Neutral recommendation over the long term (6-12
months). Currently, Activision Blizzard has a Zacks #3 Rank,
which implies a Hold rating in the short term.
ACTIVISION BLZD (ATVI): Free Stock Analysis
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