Blizzard Q1 2023 Financials were Both Up and Down while the UK Rejected the Microsoft Deal

Activision Blizzard (ABK) released their Q1 2023 financials on Wednesday… they were supposed to land yesterday, but we’ll get to that a bit later… and was quite chipper about how well they did when compared to their Q1 2022 numbers.

Activision Blizzard

As has been the case since the Microsoft acquisition was announced, ABK once again declined to talk to investors, give a presentation, or take any questions.  They have a deal that says Microsoft will pay them $95 a share, what the hell else do you want?  Nothing else matters besides making that deal go through.

But until the deal happens they are still an independent, publicly held company, so they have to give investors something every quarter.

Overall the company’s revenues were $2.38 billion, up from the $1.77 billion seen in the first quarter of 2022.

Likewise, when breaking out Blizzard, the company was quick to point out that their revenue was up by 62% over 2022 in the first quarter, ringing up $443 million in sales.  Not bad, but that 62% year over year calculation is both accurate and deceptive at the same time.

The company doesn’t exactly go out of its way to remind anybody that Q1 2022 was the recent nadir of Blizzard earnings.  Let’s do a quick review of the last two years:

In that selection of quarters, Q1 2023 is decidedly mid-pack.  $443 million is literally the median number, in the exact middle of those nine quarters.  So it was a good quarter, given recent history, but I wouldn’t exactly be spiking the football and doing an end zone dance on the year over year metric.

That said, it could have been worse.  As I noted with the Q4 2022 report, Blizzard had nothing set to launch in Q1 2023, so the whole quarter was going to be something of a judgement on the quality and stickiness of Dragonflight as a WoW expansion.  So good on that.

But… it is $40 million shy of Q2 2021, which was a similar situation where revenue was largely driven by the residual subscriber effect of the Shadowlands expansion.  So I am somewhat mixed on how much praise Blizz should get.

Yay, Dragonflight didn’t die off right away, but neither did Shadowlands and if you want to lay the blame for Q1 2022 on anything, Shadowlands would be your go-to choice.  And Blizz did suggest that Dragonflight hadn’t started off as strongly as expected.  We never got a “Dragonflight exceeds past WoW expansion sales” press release, which was a staple of the game for every expansion up through and including Shadowlands.

So good, but not great, with the weight of the past seeming to weigh down on WoW.

Likewise, the Monthly Active User count, about which I rely on MOP’s reporting, was down bigley, dropping to 27 million in Q1, way down from the 45 million seen in Q4.  Again, that isn’t the low point for Blizz MAU numbers, which were down to 22 million in Q1 2022… that cursed quarter… but it does indicate that some of their holiday boost for their buy to play games like Hearthstone and OverWatch were transitory.

As for what else was said about Blizz, here is the excerpt:

  • Blizzard segment revenue increased 62% year-over-year in the first quarter, with each of Warcraft, Overwatch and Diablo contributing to growth. Segment operating income was broadly stable year-over-year, reflecting higher development and marketing costs, including launch investment ahead of the second quarter release of Diablo IV.
  • The Overwatch and World of Warcraft teams delivered substantial in-game content and live operations to excite and sustain their communities following major product launches in the fourth quarter. Following the November release of the DragonflightTM expansion for the Modern game, our World of Warcraft team is delivering more content faster than ever before, and subscriber retention in the West is higher than at the equivalent stage of recent Modern expansions. While Overwatch engagement moderated versus the Overwatch 2 launch quarter, hours played were approximately twice the levels seen prior to the release of the free-to-play experience. Season 3, which launched in February, drove strong retention and consistent player investment versus the prior season.
  • Diablo ImmortalTM on mobile and PC also contributed to Blizzard’s first quarter net bookings growth, with the game experiencing stable trends across engagement, retention and player investment. Elsewhere on mobile, Warcraft: Arclight RumbleTM, an action strategy game internally-developed at Blizzard, continues to progress well through regional testing.
  • Diablo IV, the next major installment in the genre-defining series, will launch on PC and console on June 6. Public testing of the game in March saw very high engagement and positive feedback, and pre-sales are strong. This ambitious title will serve as the launch for a compelling live service, with regular seasons and story-driven expansions planned to drive engagement for many years to come.

That strikes me as a whole lot of hand waving about other things, while the hope for sales in Q2 and Q3 are pretty much pinned on Diablo IV being a huge success.  Basically, that is all they have on their road map.

I do not doubt that Diablo IV will be a big success, and we should see a big revenue spike in Q2 2023.  We shall see how it matches up with Q4 2022 and the Dragonflight launch.

Then there is the Microsoft deal.  I kind of expected this to be the final ABK quarterly report, that the deal might close before we got to a Q2 2023 report in late July or early August.

Then the bad news started to roll in on the deal, with the UK’s Competition and Markets Authority (CMA) announcing early on Wednesday that they had decided to block the Microsoft acquisition, which I am pretty sure is what got the financials released a day early, so it could include an immediate counter to that decision.

The CMA decision naturally has Bobby Kotick spitting nails and threatening to kick puppies all the way to Westminster where he’ll demand to speak to the manager about how big business isn’t getting the service they expect from the Tory government they purchased.

He has become some sort of Gordon Gecko/Yosemite Sam cross over character in my head at this point, but he is sure he can fix this.

The odd bit was the CMA highlighting the need to protect the emerging cloud gaming market as a key part of its criteria for blocking the deal, something that got a very quick “wut?” reaction from me… and apparently from ABK.

On April 26, 2023, the United Kingdom Competition and Markets Authority (“CMA”) announced a decision to block the merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Activision Blizzard considers that the CMA’s decision is disproportionate, irrational and inconsistent with the evidence. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. Activision Blizzard continues to believe that the deal is pro-competitive, will bring Activision Blizzard content to more gamers, and will result in substantial benefits to consumers and developers in the UK and globally. The parties continue to fully engage with other regulators reviewing the transaction to obtain any required regulatory approvals.

I mean, I am extremely dubious about this deal being “pro-competitive” in any reasonable sense of the term.  It will do what most such mergers do; lead to layoffs, increase costs to consumers, limit consumer choices, and raise the barrier to competition.

It will, in short, enrich large stockholders to the detriment of nearly everybody else.  Welcome to America, where we have returned to the 19th century era of corporations and nested trusts (which we now call “Capital Management Groups”) and the Pinkerton company… Pinkertons are still a thing for fuck’s sake… and railroad conglomerates destroying towns while getting the government to fight unions over simple requests like sick leave… it is the freaking Gilded Age all over again.

So to have all that to work with and then to lead with cloud gaming…

Cloud gaming?

Like the thing that nVidia, Sony, and Microsoft… you know, the main player in this deal… have been trying to make happen for quite a while now?  The thing that Google just gave up on with Stadia?  The thing that CCP just gave up on with EVE Anywhere?  The pipe dream that various companies have gone bankrupt pursuing for a couple of decades?  THAT cloud gaming market?  That is the big worry?

Am I missing some other cloud gaming option here?

Suddenly quite on point

As I have written in the past, big corporations have been trying to bring back the thin client, terminal connected to a mainframe, version of computing since the first desktop PC escaped into the wild.  It is all about controlling, and the fear of, the end user.  The problems and costs facing the idea still outweigh the benefits, as we have been reminded over and over.  “Fetch” will be a thing long before cloud gaming is anything to worry about when it comes to video game market share.

Also the CMA is pretty sure that Call of Duty won’t run on a Switch, probably because somebody’s nephew saw a post on Reddit about it, so they’ve said “No” to the whole thing.

All of which might just be a tempest in a teapot… which is the generally accepted metaphor to describe UK post Brexit… because the EU and the US FTC haven’t give their responses yet.  The former is due later this month and the latter not due until August.  We know the EU simply hates US tech firms… not without reason, but they go beyond reason… to the point of making up specific regulatory categories mostly focused on them. (China gets a nod too, but they couldn’t find an EU company anybody had heard of for a fig leaf to show they aren’t just targeting the foreigners.)  So that might be a bigger worry than the UK.

Meanwhile, even with a Democratic president in the White House the bar Microsoft needs to clear to be approved is about 2mm higher than the nothing it was under the last administration because I won’t claim that UK politics are bought and sold at the corporate suite level and then pretend that the same isn’t true in the US.  Still, maybe we’ll be surprised.

So when Microsoft is out there pouting publicly that this CMA announcement represents its darkest day, I can only suggest that the horizon may hold even darker days still.

Also, is nobody at Microsoft old enough to remember the late 90s and early 2000s when literally EVERY government agency in the world hated the company and wanted to drop it for Google Sheets or Open Office or whatever?  JFC Microsoft, get a grip!


8 thoughts on “Blizzard Q1 2023 Financials were Both Up and Down while the UK Rejected the Microsoft Deal

  1. Bhagpuss

    Best post on the topic I’ve read – and I’ve read a few. The paragraph about Bobby Kotick going to Westminster to complain is worth the subscription on its own.

    The one thing I’m waiting for someone to explain is why this deal, or any deal, needs all these various authorities to give it the green light. Is there some kind of global government now that I haven’t been told about? They’re both American companies, aren’t they? Why do they have to listen to the UK or the EU or even Brazil, who I read have already said yes to it? So long as the US regulator approves, why can’t they just go ahead anyway?

    Also, just as a fyi, I think there are at least two “Q1 2022″s in the text that ought to be “Q1 2023”. Either that or I didn’t uderstand something – always a possibility.


  2. Wilhelm Arcturus Post author

    @Bhagpuss – Why they need approval in the EU or UK or China or wherever has to do basically with how much business they do in those countries and what sort of presence they have there.

    An analogy that I am familiar with is sales tax in the US, which is akin to VAT elsewhere. Many states charge a sales tax to generate revenue, but they can only collect that tax within their jurisdiction. If I am a company in California and I sell something to somebody in Michigan, I don’t collect the CA or the MI sales tax because they’re not in CA and I am not in MI.

    This makes MI mad and they can demand that we collect their state sales tax, sending angry letters and such, which I will throw in the trash. This is based on a true story, btw. Only the federal government has jurisdiction over interstate commerce. States cannot set up inter-state fees and tariffs

    But then somebody in New York buys something. We are a CA company primarily, but we have a NY office and a business license and all of that, so NY sees as a local business. I have to collect their sales tax and report on it and send it to them quarterly.

    In this analogy, ABK has set up shop in the UK and the EU as a business and so, while they get all the trouble of being a US company, they also get treated as a local entity and have to obey rules and accounting practices and labor laws and such of those locales.

    So as far as the UK and the EU is concerned, their local MSFT is buying their local ABK and, while the core of those businesses are on the west coast of the US, they still have to abide by local regulations being in those jurisdictions. Also, as noted, there is very much a tradition of being against big US companies, a bias not wholly without merit.

    Or something like that. Both the US and EU have practiced some extreme overreach with things like GPDR where a US company only doing business in the US is somehow bound by EU regulations if an EU citizen uses their product, something complicated by the internet. It smacks of sort of inverse extraterritoriality, where EU laws apply to anybody who comes in contact with an EU citizen.


  3. PCRedbeard

    Activision Blizzard should offer to burn Bobby at the stake on live television to see if that’ll placate the CMA. Hey, you never know, it might work.


  4. Wilhelm Arcturus Post author

    @PCRedbeard – The biggest heartbreak of this deal is that Bobby stands to be far and away the largest single beneficiary should it go through.

    I am ambivalent about ABK, my animosity towards MSFT has long since mellowed, and you cannot convince me that cloud gaming is something to worry about, so the main reason for me to root against this deal… aside from the items listed in the post… is that it will keep Bobby from becoming even more obscenely wealthy for having run a digital sweatshop.

    If the deal gets cancelled I will run a post with the headline “Ha Ha! Suck it Bobby!”


  5. Lewis Maskell

    Been looking forward to your take.

    I have a suspicion – based on no evidence you understand – that the CMA is feeling confident after it forced Facebook off Giphy. Also, I must confess seeing the temper tantrums from some very powerful folks did make me smile.

    What I found particularly amusing though was the statement that the EU is better for business – given the EU is yet to rule. Strikes me of trying to play the EU, but post-Brexit the EU is even more anti-American than it was before (and, as you say, it has hardly ever been enthused about US tech companies as is).

    But then this decision isn’t final yet – there will be an appeal.


  6. dogdad87

    Love This !! my thoughts on this ….
    Thanks – PomKing


  7. Angry Onions

    @Bhagpuss Let’s say you’re a citizen of Freedonia. Your human rights are protected by the laws of Freedonia, which clearly state that you can’t be burned on a stake for missing a payment to a service provider. Then you buy a subscription service from a company in Tyrania, whose laws clearly state that you will be burned on a stake if you ever miss a payment. And then you accidentally miss a payment. Whose laws apply?

    In a broad sense, EU citizens are entitled the legal protection provided by the laws of the EU which are enforced by EU Governments, and not whatever floats their boat over there in whatever country a company is from. Also, if you want to come and get our money, you must play by our rules. Our money, our rules.

    “But, but, I am from Tyrania! We burn those who miss a payment!” “Tough luck, you’re NOT in Tyrania”

    Disclaimer: I use words like “protected “entitled” and whatever as translations to English from my primary language, so please nobody come and fry me over using the wrong loaded word…


  8. Esteban

    Small typo in the quarterly earnings list and in the subsequent paragraph, final Q1 2022 should be Q1 2023.

    Great post, quite informative. While I’ve scant love for Microsoft or any other corporation, I’m coming around to being somewhat in favour of this deal. The breast-milk-stealing revenge-porn colporteurs could probably use some grown-up supervision, and Microsoft has at least permitted ZeniMax Workers United, so there’s a glimmer of hope on the union front.


Voice your opinion... but be nice about it...

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s