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Activision (ATVI) Q4 Earnings & Revenues Crush Estimates

Shares of Activision Blizzard Inc.ATVI were up more than 10% after the company posted fourth-quarter 2016 earnings and announced extensive shareholders return plans.

Fourth-quarter 2016 adjusted earnings of 86 cents and revenues (including deferrals) of $2.452 easily beat the respective Zacks Consensus Estimate of 72 cents and $2.265 billion. On a year-over-year basis, revenues were up nearly 81%. Revenues were driven by increasing digital revenues, overwhelming success of Overwatch and the buyout of King Digital Entertainment. However, the company's Call of Duty Infinite Warfare relatively underperformed compared to last year's Call of Duty: Black Ops 3.

The company announced a new buyback program worth $1 billion to be executed over the next two year time frame. Also, Activision hiked its dividend by 15% to 30 cents a share, payable on May 10, 2017 to shareholders of record as of Mar 30.

Quarterly Numbers

Excluding deferral revenues, Activision reported sales figure of $2.014, up 48.9%. Segment wise, Product sales were $696 million, down 2.1%, whereas subscription, licensing and other revenues more than doubled to $1.318 billion.

On the basis of distribution channels, Activision reported retail channel sales of $372 million (down 19% year over year) and digital online revenues of $1.454 billion (which more than doubled year over year). Digital revenues contributed 72% of total revenue in the quarter. Other revenues grew 13% year over year to $188 million.

On a geographical basis, revenues from North America grew 54% to $1.012 billion, while that from EMEA grew 33% to $693 million. Revenues from Asia Pacific grew 80% to $309 million.

On a non-GAAP (redefined) basis, operating income was $681 million compared with $284 million reported in the year-ago quarter.

It is to be noted that Activision and a host of other video game companies have changed the way they report their non-GAAP fiscal results to meet stricter guidelines imposed by the SEC. The company will no longer include the impact from revenue deferrals accounting treatment on certain online enabled products.

Activision had over 447 million monthly active users (MAUs) at quarter end.

Activision and Blizzard divisions online player community MAUs grew 3% and 37% year over year to 50 million and 36 million, respectively. King Digital reported MAUs of 405 million due to the absence of any big releases.

Activision Blizzard, Inc Price, Consensus and EPS Surprise

Activision Blizzard, Inc Price, Consensus and EPS Surprise | Activision Blizzard, Inc Quote

Financial Position

Activision exited the quarter with $3.245 billion in cash and cash equivalents. Long-term debt was $4.887 billion. Operating cash flow for the year was $2.155 billion

Outlook

Management initiated the 2017 guidance by underscoring a "lighter slate" of releases in the year. Plus, management also said though ad revenues will start to contribute in 2017 but will start having a major impact beginning next year.

For 2017, Activision expects GAAP revenues of $6 billion and earnings per share of 72 cents. On a non-GAAP basis, revenues and earnings are expected to be $6 billion and $1.70 per share, respectively. Deferral revenues are expected to the tune of $300 million

The Zacks Consensus Estimate for revenues and earnings is pegged at $6.73 billion and $1.86 per share, respectively.

For first-quarter 2017, Activision expects GAAP revenues of $1.55 billion and earnings per share of 25 cents. On a non-GAAP basis, revenues and earnings are expected to be $1.550 billion and 51 cents per share, respectively. Deferral revenues are expected to the tune of negative $500 million.

Our Take

Activision has been benefiting from its focus on broadening its franchise portfolio, innovation and initiatives to expand to new geographies. Activision's offerings like StarCraft, World of Warcraft, Heroes of the Storm and Call of Duty are widely popular and should continue to contribute to the bottom line. At the conference call, management said that it was "enthusiastic" to take Call of Duty "back to its roots" i.e, the new game reportedly will have more of "traditional combat".

Activision is aggressively working on becoming a media entertainment giant, somewhere on the lines of The Walt Disney Company. Apart from launching a movie studio, the company is also strengthening its presence in the lucrative e-sports market. Recently, Activision announced the launch of Overwatch e-sports league. Plus, it announced a new consumer product division to be spearheaded by an ex-Walt Disney executive, Tim Kiplin.

Nevertheless, the higher adoption of free-to-play games and significant competition from the likes of Electronic Arts EA , Take Two Interactive TTWO and Glu Mobile GLUU , remain the near-term headwinds. Also, an uncertain macro-economic outlook adds to its woes as video games form a part of discretionary spending. Also, the company's dependence on a handful of mega franchises (Call of Duty, World of Warcraft) for the lion's share of its revenues makes it highly vulnerable.

Currently, Activision has a Zacks Rank #3 (Hold).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Shares of Activision have registered impressive growth in the past one year. The stock generated a return of 44.61% compared with the Zacks Toys/Games/ Hobbies Product industry's gain of 25.81%.

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Activision Blizzard, Inc (ATVI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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