Activision Blizzard hits fiscal highs in Q4 2022

Activision Blizzard has reported record-breaking results for both 2022 and the fourth quarter in its most recent financial results.

For year-to-date performance, Activision Blizzard’s net bookings were $8.51 billion in 2022, up nearly 2% from $8.35 billion in 2021. Net bookings for the fourth quarter of 2022 were up 40% on annualized (from $2.49 billion in 2021 to $3.57 billion in 2022). In-game and mobile internet bookings followed. In-game net bookings grew about 47% (from $1.24 billion in 2021 to $1.82 billion in 2022), while mobile net bookings grew year over year in the mid-teens.

In terms of engagement, Activision Blizzard reported 389 million monthly active users in Q4 2022.

Overall, Activision Blizzard seems to be very focused on their main tentpole titles and executing content that meets (or hopefully exceeds) player expectations. Building trust with his audience pays off.

What is driving this growth?

All three of the company’s major segments – King, Blizzard and Activision itself – were major contributors to Activision Blizzard’s success. All divisions reported record sales in the fourth quarter.

Candy Crush Saga continues to be a reliable – and growing – source of income for ABK, despite the challenges in the mobile market. The developer is focusing on publishing more content for the game (such as seasons and events) and adding social and competitive features to the traditional single-player experience. Together, this additional content drives corresponding engagement and payment behavior. King plans to apply these lessons to the rest of his portfolio.

Blizzard attributed the success to the releases of Overwatch 2 and World of Warcraft’s Dragonflight expansion, as well as the continued success of Diablo Immortal. Both these new releases and the increased engagement driven by this new content were critical to the developer’s record-breaking success. All three titles combined each brought in more than $100 million in revenue. This is despite the controversial launch of OW2 and lower sales for Dragonflight compared to other expansions.

Call of Duty was another bright spot. Activision reported that its revenue segment grew 60% year-over-year in the fourth quarter. This is not surprising given Call of Duty: Modern Warfare II’s record sales. Call of Duty Mobile also performed well, with net bookings hitting a new quarterly record.

Overall, Activision Blizzard’s bet on premium mobile titles – most notably Candy Crush, Diablo Immortal and Call of Duty Mobile – is clearly paying off financially.

Dealing with headwind

Activision Blizzard faces numerous challenges, most notably the expiring NetEase deal, morale concerns and increasing regulatory scrutiny regarding its impending merger with Microsoft.

Activision Blizzard acknowledged that the expiring NetEase deal was a concern for the company, but they remain optimistic about finding a new Chinese operating partner. The company estimates that about 3% of their sales were at stake after this deal ended.

With an increased focus on developing more consistent content and concerns about workplace harassment, Activision Blizzard is increasingly focused on hiring and retaining talent. Game development teams grew by more than 25% year over year in 2022. The company has lofty goals with a five-year plan around DEI initiatives. ATVI is already seeing an increase retention of personnel as a result of these plans. Recently, Activision Blizzard reached a agreement with the SEC regarding whistleblower concerns, evaluating workplace grievances, and the formulation of the company’s standard severance agreements.

The biggest elephant in the room, of course, is Activision Blizzard’s upcoming merger with Microsoft. The company faces regulatory investigations from the UK, EU and US regarding antitrust. The company remains steadfast in its belief that the deal will be completed. However, it’s unclear what it will take to get regulators to accept the agreement. Currently, the deal severance payment is $2.5 billion and will rise to $3 billion if no deal is reached by April 18, 2023. More news is expected this quarter.

Activision Blizzard vs Consensus

Overall, most analysts expected Activision Blizzard to reach $3.19 billion in revenue. ATVI reported $3.57 billion in net bookings (which is comparable to revenue) in the fourth quarter of 2022, beating expectations by approximately 12%. The company achieves this figure by combining its reported GAAP net income ($2.334 billion) with its deferred income of $1.232 billion.

This high performance also translates into higher earnings per share (EPS). Q4 consensus expected $1.51 in EPS, while Activision Blizzard reported a record $1.87 in EPS. As a result, the company beat expectations by nearly 24%.

Prior to these results, Activision Blizzard’s stock was down about 5% on the day, but the stock shows a slight increase after hours. This is in contrast to TakeTwo’s results that were also announced today.