Blizzard Soars with Dragonflight in Q4 2022… though not as high as Blizz had hoped

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While early Dragonflight sales have not reached the level of the prior expansion, community feedback on the title has been positive.

–Activision Blizzard Q4 2022 Financial Report

What is “early” even in that context?  Most sales come in via pre-order or in the first week, and we have a series of Blizzard press releases that argues that has been the way of things for well over a decade.

Activision Blizzard

I’ve tracked that sort of thing through Shadowlands, and while Blizz has had to extend the sales period out from the first 24 hours to the first month in order to maintain a series of record launches, they have always managed it… until Dragonflight.

That is not necessarily a slam on the new expansion.  It is rather, to my mind, Blizzard having sowed the seeds of its own situation with so less than stellar expansions and a long determination to tell the players what they should want… which is arena PvP and mythic raiding.  So we saw Blizz offering incentives to buy the expansion less than a month after it launched.  That says to me that we’re past anything that qualifies as “early” on the sales front.

But that is me dragging in the negative up front.  There are future problems in that, but we’ll get to that in a bit.

As for Q4 2022, Blizzard did very well for itself, as it tends to when it has a retail WoW expansion, even when it doesn’t set a new sales record.

Blizzard was already doing well in Q3 2022, ringing in $543 million in revenue for on the back of Wrath of the Lich King Classic, up from the $401 million in Q2 2022 when Diablo Immortal gave them a boost.

Q4 2022 saw the total jump to $794 million, which shows what a new retail WoW expansion can do, which is an all time quarterly high for the company.

As for how it compared to Q4 2021… well, Blizz only managed $419 million, a low mark for the holiday season.  So year over year looked very good, though we know all things are not equal.  Q4 2021 had Shadowlands already in the doldrums and not much else new to sell.  And things got even worse in Q1 2022, when revenue declined to $274 million.  So it has been quite a rise.

Even the dreaded MAUs were up again, with Blizzard managing 45 million in Q4 2022, a huge spike over the long declining number and another all time high. (As usual, Massively OP has been tracking that.)

But, of course, the trick is to maintain that rise.  Blizzard laid out what they have planned for 2023:

  • Blizzard segment revenue and operating income grew approximately 90% year-over-year in the fourth quarter, as our teams executed against a substantial pipeline to deliver well-received content across key intellectual properties. Warcraft, Overwatch and Diablo grew strongly year-over-year and each delivered over $100M in net bookings.
  • In the Warcraft franchise, World of Warcraft delivered significant year-over-year growth in reach, engagement and net bookings in the fourth quarter following the September release of Wrath of the Lich King® Classic and the November launch of Dragonflight™. While early Dragonflight sales have not reached the level of the prior expansion, community feedback on the title has been positive. Blizzard has announced plans to deliver substantially more follow-on content for the expansion than in the past, and post-launch subscriber retention in the West is higher than recent expansions. Elsewhere in the Warcraft franchise, mobile title Warcraft: Arclight Rumble™ continues to progress well through regional testing.
  • The October launch of Overwatch 2 with a free-to-play model delivered the highest quarterly figures for player numbers and hours played in Overwatch history. Player investment is also off to a strong start, with fourth quarter in-game net bookings at the highest level to date for Overwatch. The team is working on an ambitious slate of regular seasonal updates, including PVE content, to engage and expand the community, as well as other ways for new and existing players to experience the Overwatch universe longer-term.
  • Diablo Immortal™ on mobile and PC also contributed to Blizzard’s fourth quarter year-over-year growth. Engagement and player investment trends for the title were stable at the end of the fourth quarter and into the new year. Diablo IV, the next installment in the genre-defining series, is planned for release on PC and console on June 6, 2023. This ambitious title will serve as the launch for a compelling live service, with regular seasons and story-driven expansions planned for years to come.
  • Licensing agreements with NetEase that covered the publication of several titles in China expired in January 2023. Nonetheless, we still expect very strong year-over-year financial growth globally for Blizzard in 2023, driven by both the launch of Diablo IV and live operations. Blizzard remains focused on finding alternative ways to serve the community in China.

I am not sure that is as much sunshine as they think it is.  Sure, I expect that Diablo IV will be a big deal if they make their June 6th ship date.  I have my doubts.

But most of that is what is listed has happened already or a somewhat overly rosy look into the future.  It is great that Dragonflight player retention is better than the last expansion.  All that really confirms is just how bad Shadowlands player retention really was.

And now WoW is a spent force for 2023.  The two year clock to the next expansion for retail is counting down now so the best they can do is work on retention.

Meanwhile, WoW Classic is done.  Northrend is the end of the “classic” road and I have trouble seeing what Blizz might get up to otherwise on the WoW front.  But more on that tomorrow.

And then there is the situation in China, which they’re trying to pretend isn’t a thing here.  WoW was still running in China in Q4, but it got turned off last month.  Happy lunar new year!  While WoW China was only 3% of Activision Blizzard’s overall revenue, it was reported to be 15% of Blizzard’s.  There is a chunk of change shaved off the top with no return in sight.

The problem is that WoW pays the bills.  If they broke out revenue by product it would be WoW in one big bucket and then everything else in a noticeably smaller bucket.  Right?  WoW China was a lesser fraction of the overall WoW revenue stream but worth 15% of the overall revenue.

And Blizzard can’t even hold tight at its peak because box sales will have dwindled to a trickle in Q1, so expect their revenues to be down from the peak unless they have some magic in the wings.

In the end though, if the Microsoft deal goes through, Activision Blizzard will be buried so deep in Microsoft’s financial that we’ll know exactly diddly divided by squat about what they’re up to.  Even these terse briefings will seem like a bounty of details.

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