Activision Blizzard Inc.
) reported fiscal first quarter 2012 non-GAAP earnings (including
stock based compensation but excluding one time items) of 5 cents,
which handily surpassed the Zacks Consensus Estimate of 1 cent and
managements' guidance of 3 cents. However, on a year-over-year
basis, the reported earnings declined 58.3% (12 cents) due to lower
revenues and higher sales and marketing expenses.
Though non-GAAP revenues (excluding revenues from deferral and
related cost of sales) shrank 22.2% year over year to $587.0
million, it easily surpassed the Zacks Consensus Estimate of $566.0
million and company's guidance of $525.0 million. The
year-over-year decline in revenues was due to low subscriber base
World of Warcraft
coupled with lower-than-expected sales of
Call of Duty
and lesser number of downloadable contents (DLC) releases.
On an operating segment basis, revenues from Activision
Publishing dropped 16.0% from the previous-year quarter. Blizzard
Entertainment and its subsidiaries' revenue plunged 30.0% from the
prior-year quarter due to the lack of any frontline game releases
and revenue from Distribution was down 13.0% from the previous-year
On a geographical basis, North America, Europe and Asia Pacific
recorded yearly revenue declines of 26.0%, 20.0% and 15.0%,
Total costs and expenses (including stock based compensation but
excluding one time items) were $518.0 million, down 7.5% on a
year-over-year basis, primarily due to an 8% year-over-year decline
of product development cost coupled with general and administrative
expenses that remained flat year on year. However, sales and
marketing expenses increased 31.7% from the previous-year quarter.
As a percentage of revenue, operating expenses deteriorated from
the 74.2% in the previous-year quarter to 88.2%.
Thus, operating income plunged 64.6% to $69 million from the
year-ago quarter and the operating margin was 11.8% compared with
25.8% in the prior-year quarter.
Net income for Activision was $51 million in the quarter, down
from $138 million in the prior-year quarter.
Activision exited the first quarter with $3.48 billion in cash
and cash equivalents and short-term investments, versus $3.53
billion in the previous quarter.
During the quarter, Activision repurchased 22 million shares for
an estimated price of $261.0 million. Activision also raised its
dividend by 9.0% from 2011 to 18 cents and will be paid on May 16,
For the forthcoming quarter, Activision expects non-GAAP EPS of
10 cents and revenues of $805 million. The Zacks Consensus Estimate
for earnings is pegged at 14 cents per share and expects revenues
of $809 million for the upcoming quarter.
For fiscal 2012, Activision's non-GAAP EPS estimate is 95 cents,
above the Zacks Consensus Estimate of 88 cents. Total revenue
(non-GAAP) is estimated to be $4.53 billion, in line with the Zacks
Management expects the release of
on May 15, 2012 to boost the second quarter results. Moreover,
, released in April, would come in full effect in the second
quarter. Moreover, management expects to be impacted positively by
the mix of higher margin revenues in 2012.
Activision is focused on building a number of franchisees that
will drive its top and bottom lines in 2012 and beyond. The
company's initiatives to strengthen its
Call of Duty
portfolio through the launch of new versions and content packs
would benefit the company in the long run. Moreover, the company is
expected to come out with a new massively multiplayer game in 2012,
which coupled with Call of Duty's expansion in China are the other
positives for the company. Activision's foray into the mobile
gaming market is expected to be a long-term positive.
However, the softness in the video game industry and
Activision's limited presence in the social gaming market coupled
with significant competition from
Electronic Arts Inc.
Take-Two Interactive Software Inc.
) keep us Neutral on the stock over the long term.
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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