Daily Archives: May 3, 2019

Body Blow to Blizzard Margins

Oddly enough, I had a sense that things were off.  I picked up Candy Crush Saga again… I know, I said I was done there, but another post on that later… a couple months back and noticed over the last few weeks that they had added a ways to earn boosters by watching video ads.  You can get an extra booster every level for watching a video, an extra spin at the booster wheel for watching a video, and so on.

When this showed up my first thought was, “Somebody is looking for a way to boost Q2 earnings.”

And then the Activision Blizzard Q1 2019 financial report showed up yesterday.

You can find all the data they have shared, plus a replay of the analyst call on the investor relations site, but let me just summarize by saying it isn’t pretty, at least for Blizzard.

Overall it wasn’t so bad I guess.  The bottom line exceeded the guidance they gave, and that counts for a lot.  Activision gave us a warning last quarter and laid off 8% of its workforce in anticipation of tighter times.  The over payed executive staff didn’t share any of that pain, but they never do.  It is hard to look bad when you spend money on share buy backs to support the stock price.  From the report:

Two-year $1.5B stock repurchase authorization, started Feb 14, 2019

But expectations were set that things would be slowing down for the company.  On the Activision side of the house you only get one Call of Duty release a year, so you only expect one big quarter a year out of them.  They’ll be back in Q4 with big numbers.

But Blizzard and King, they are the reliable revenue generators, or so it usually goes.

Activision Blizzard Q1 2019 Financial Results Presentation – Slide 10

King looks to about on par.  They are down some from Q4 but are hanging tough on the margins front and align pretty well with Q1 2018.  Down a bit, but not much.

Activision is way off but, again, no Call of Duty release this quarter.  Margins are a bit dicey compared to Q1 2018, though revenue was actually up just a bit.

And then there is Blizzard.

It is tough to compare them against Q1 2018 because they had the Battle for Azeroth pre-order going, which boosted sales.  And, of course, in Q4 the game was still on its Battle for Azeroth high, with some people dumping in some extra cash for the 6 month subscription for an exclusive mount.  Well, it was exclusive.  You can buy it straight up ala carte now in the cash shop.  I suspect, again, something to goose earnings a bit for Q2.

The operating margin for Blizzard though… 16% is abysmal for a software company.  And that is noted as having been offset by “lower costs.”  They laid people off and likely cut back on something.  We might be seeing a reason here why Blizzard isn’t going to Gamescom this summer as well as looking for ways to offset more of the cost of BlizzCon this year with higher prices and special big spender packages.  Conventions like BlizzCon, despite what you might think, are not money makers.  Blizz is just trying to limit the bleed.

And what does this say about Blizzard games?  I see people say regularly that nobody plays WoW now, though that is patently false.  The servers are more lightly loaded, certainly, but things still seem to be buzzing and I run into other players everywhere.  However, those people who bought in on the free mount deal got to skip paying Blizz any money in Q1, having paid for six months up front.  That certainly might have left a hole in the income column.

And the Blizzard MAU for Q1 2019 was 32 million, which is down from 38 million last year, but still pretty high.  And when you have other games, free or non-subscription games, mixed into that number, it is meaningless unless you can get further details.  But clearly fewer people are spending money on Blizzard games.  SuperData was saying that there was burnout on the Hearthstone front and Overwatch has been reported as sagging since last summer.

And what else does Blizzard have?  Diablo III is in its forever seasonal holding pattern.  StarCraft II is kicking around without anything to sell people.  Heroes of the Storm is now a hobby as much as anything, its professional league having be shut down.  It makes me wonder how much Blizzard made via GoG.com with Diablo and Warcraft.

But more damning is perhaps what the presentation said about Blizzard, which wasn’t much at all.  Aside from a mention of the Overwatch League season, the Blizzard was pretty much left out.

But then, what else do they have to talk about on the Blizzard front?

WoW Classic is still out at some unspecified date in the summer.  The only new title on the horizon is Diablo Immortal, the mobile game that got such a bad reception at BlizzCon last year that I have to wonder if Blizzard is sitting on it until they have some other Diablo franchise news to report.  And that is about it.  There will be no announcements and Gamescom and BlizzCon doesn’t hit until November 1, 2019.  If it wasn’t for WoW Classic they would have nothing coming up.

And so it goes.