Tag Archives: Activision

A Good Fourth Quarter for Blizzard… When Compared to the Rest of 2019

Activision Blizzard had their Q4 2019, and 2019 overall, financial results announcement and conference call yesterday.  You can find all the numbers, the slide deck, and the conference call recording over at the investor relations site.

The basic financials for the three groups were presented in the slide deck as usual.

Activision Blizzard Q4 2019 Financial Results Presentation – Slide 9

Revenue was down from last year’s Q4 results, when Blizzard pulled in $686 million, but operating income was up from $241 million.  They made more money from less income, so margins were also up from last year’s 35%.

Compared to the rest of the year, Blizzard’s revenue and income was heavily tilted towards the end of the year, giving it a distribution akin to its Activision stablemate, which tend to make most of its money when the latest Call of Duty launches every year in Q4.

  • Revenue / Income / Margin
  • Q1 $344M / $55M / 16%
  • Q2 $384M / $75M / 20%
  • Q3 $394M / $74M / 19%
  • Q4 $595M / $260M / 44%

For Blizzard the highlights were a bit of hand waving and repeated mentions and nods towards WoW Classic.

Activision Blizzard Q4 2019 Financial Results Presentation – Slide 7

A few things happened between the end of Q2 in June 2019 and the end of the year, but WoW Classic was the big one.  Bobby Kotick specifically said on the call that adding WoW Classic to the WoW subscription doubled subscribers over that period.  Yay WoW Classic.  But they didn’t mention a lot else, including what a rebuke to the current game the popularity of WoW Classic is, and were clearly avoiding bringing up some things.

I am reminded of the CEO of EA on the first earnings call after the launch of SWTOR where they declined to break it out or even mention it specifically.  He said that SWTOR was not their most interesting title or some such.  Battle for Azeroth is clearly not on the “interesting” list over at Blizz right now.

Nor is Warcraft III Reforged.

Over at Massively OP they reported on the question and answer segment of the call where Activision Blizzard was clearly ducking questions related to a few things they didn’t want to talk about.

The company also declined to break out total revenue and income numbers for the three divisions, something they have done in the past on their charts.  But we have the quarterly numbers.  I typed them in above.  I can also add them up to get totals.

In 2019 Blizzard made $1,717M in revenue for $464M in operating income, which gives a simple margin number of 27%.

In 2018 Blizzard made $2,291M in revenue for $685M in operating income, which put the simple margin number at 30%.

Basically, Blizz was down 25% in revenue and about 33% in income in 2019.  Not a good year for them in that regard, though all numbers are relative.  I am certain some smaller studios would think their dreams had come true if they pulled in a quarter of what Blizz did in 2019.

And will things get better?  The slide deck promises “follow-on” content for WoW Classic, but so far as I have seen that just means the remaining unlock phases.  Giving us Darkmoon Faire and the final raids will make people happy, but it isn’t going to grow the subscription numbers.  For what is in the plan, those numbers have peaked, dropped off some, then hit something of a steady state.  And we know that a steady state for an MMORPG is really a slow decline.

Other than that, there isn’t a lot on the horizon.  Yes, there is the Shadowlands expansion, but that won’t be until Q3 and, while it will likely cause a spike in revenues, it needs something special to hold people.

There will be more Hearthstone decks, because there are always more Hearthstone decks.  And Diablo: Immortal will go into regional testing at some point.  Didn’t NetEase claim that was done almost a year ago?  And Blizzard’s recent efforts like the 8.3 patch and Warcraft III Reforged have not been burnishing the company’s reputation for quality and polish.

Will 2020 revive Blizzard’s fortunes or just see them sink further?

Related:

Quote of the Day for WoW Classic Fans

World of Warcraft® Classic drove the biggest quarterly increase to subscription plans in franchise history, in both the West and East.

-Activision-Blizzard Q3 2019 earnings report

WoW Classic brings another ray of sunshine.

Given what SuperData told us about WoW Classic previously, this was not unexpected.

This ray of sunshine however comes amidst some cloudy skies at A-B.

The company took a lot of heat at the start of the year when it announced layoffs in practically the same breath in which it announced record financial performances.  While people were outraged, the 2019 financial reports have supported the company’s pessimism.  Blizzard was especially hard hit with its margins dropping from 30% to 16% in Q1 2019 as Battle for Azeroth shed players while the company had nothing else new to attract people.  And things have remained down.  The charts show that Blizz has recovered a bit on margins, but now Activision is was down.

Activision Blizzard Q3 2019 Financial Results Presentation – Slide 9

And the talk at the presentation was largely about the long term tent pole products, Call of Duty and World of Warcraft.  Even as they try to diversify their stable of titles, the old champions have to carry water for everybody.  Even the up part of company, King and its mobile games, the emphasis was on the Candy Crush franchise.

This is a very common problem, creating a popular and very profitable product then never being able to create something that could match, much less surpass, that product.

There was even mention of possibly beefing up the WoW team.  And, it was recognized that WoW Classic gave the company a boost during an “off” year when WoW did not have an expansion set to go.  There was some uncertainty about how sustainable WoW Classic would be over the long term.  And certainly, if they don’t do anything else with it, it will dwindle off to a much smaller population.

Finally, Q3 ended on September 30, 2019.  The Hong Kong debacle did not come to pass until mid-October, so that may put something of a damper on Blizzard numbers for Q4.  Opening up pre-orders for Shadowlands during BlizzCon may offset that somewhat, but that is a short term solution for a long term problem.

You can find all of the quarterly result information at the Activision Blizzard investor relations site.

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.

Quote of the Day – Possible Side Effects

Further, there can be no assurance that our business will be more efficient or effective than prior to implementation of the plan…

Activision Blizzard – SEC Filing about the impact of laying off 8% of staff

Activision Blizzard caught more than a bit of heat last month when it announced record revenue and layoffs in the same investor call when going over its 2018 financial reports.

But, you know, Activision Blizzard is a publicly held business and so cannot rest on its laurels.  It has to set expectations for the next period, which it said would see a decrease in revenue.  To show they were addressing that up front they opted to give the axe to 8% of the company.  It was their fiduciary responsibility.

I do wonder how fiduciary responsibility plays out when CEO Bobby Kotick is asked to explain the $33 million in compensation he received last year.  Is he really worth the 100+ senior developers that kind of money could hire?  That number was enough to earn him the #2 spot on the Top 100 Most Overpayed CEOs list, which ranked CEOs on the financial performance of their company relative to their compensation.  He is ranked worse than Virginia Rometty, the latest charlatan trying to keep the corpse of IBM shambling down the road just long enough to cash in.  Not a good look.

Anyway, people got the axe because the company needed to trim sails for 2019.  It was required.

And then this past week came the SEC filing that covered the planned staff reduction, which said this about it:

In February 2019, we announced a restructuring plan under which we plan to refocus our resources on our largest opportunities and to remove unnecessary levels of complexity and duplication from certain parts of our business. While we believe this restructuring plan will enable us to provide better opportunities for talent, and greater expertise and scale on behalf of our business units, our ability to achieve the desired and anticipated benefits from the restructuring plan within our desired and expected time frame is subject to many estimates and assumptions, and the actual savings and timing for those savings may vary materially based on factors such as local labor regulations, negotiations with third parties, and operational requirements. These estimates and assumptions are also subject to significant economic, competitive and other uncertainties, some of which are beyond our control. Further, there can be no assurance that our business will be more efficient or effective than prior to implementation of the plan,or that additional restructuring plans will not be required or implemented in the future. The implementation of this restructuring plan may also be costly and disruptive to our business or have other negative consequences, such as attrition beyond our planned reduction in workforce or negative impacts one employee morale and productivity, or on our ability to attract and retain highly skilled employees. Any of these consequences could negatively impact our business.

Basically, this planned layoff might not change anything and could possibly make things worse.

Now, I know that in the litigious world in which we live a public company has to cover its ass lest their publicly announced plans not go as expected, leading to lawsuits.  It is pretty much the same way that drug companies have to list all possible side effects… and I love when “death” gets its own spot on those lists… so that they can later claim that they warned you that you might end up with eczema, high blood pressure, sleeplessness, or death.

But it still undermines the confidence shown on the call that laying off almost 800 people from the company was necessary to see it through 2019.  And it further exposes the assumption that a CEO like Bobby Kotick is paid so much because he knows what to do, that his expertise is somehow worth all that money.  The ATVI stock price, the all important absolute measurement of a company’s value for Wall Streets, seems to indicate that over the last he wasn’t all that.

Meanwhile, as a side note, buried in that filing, is a statement about the top franchises of Activision Blizzard:

For the year ended December 31, 2018, our top three franchises—Call of Duty, Candy Crush, and World of Warcraft—collectively accounted for 58% of our net revenues.

So if you’ve been gloomy about WoW, or worried that something else might be taking over the main focus at Blizzard, you can feel a bit better.  If you’re an Overwatch fan though… well… Overwatch made the “top franchise” cut in 2016 and 2017, but appears to have fallen below the line for 2018.  The line is apparently set at the 10% or more of total revenues mark.

Activision Blizzard – Famine in the Midst of Plenty

I already had a post queued up for today, one about EverQuest and the anniversary progression servers they just announced. But events have overtaken that, so it has been pushed off until tomorrow.  It can wait.  Instead there is a fresh turd in the punch bowl calling attention to itself and which I can’t seem to ignore.

Let’s talk about Activision Blizzard for a moment.

There are few things that can raise the ire against capitalism than a company declaring record revenue and announcing layoffs on the same day.  And yet that was yesterday for Activision Blizzard.

Unless this blog is literally the only video game site you read… in which case I am sorry… you have probably seen the news of yesterday’s earnings call spread around.

Bobby Kotick led the investor call yesterday and was able to declare that Activision Blizzard had its best year ever, earning $2.38 billion in revenue.  However, it wasn’t as good as he had previously promised.  Wall Street was led to believe that the numbers would be closer to $3 billion.  Furthermore, there was expected to be some decline from this earnings summit, with 2019 being described as a “transition year.”

To appease Wall Street for this it was announced that the company would be laying off 8% of its staff, adding up to roughly 800 people.  In my mind I see the scene from The Fifth Element where Jean-Baptiste Emmanuel Zorg callously approves a layoff, though that probably flatters the Activision.

The company was quick to follow that with a statement that these layoffs would not be hitting the actual game developers and that “in aggregate” it was expected that game development staffing across the company and its many titles was expected to grow 20% over the course of the year.  What “in aggregate” means is left to the imagination, since I doubt that we’ll every see any follow on indicating if or how this came to pass.  In aggregate some more developers at NetEase working on mobile games for Blizzard might count.

But this ritual sacrifice apparently worked for the moment as ACTI stock has been up a bit today, though the share price is still almost half of what it was back in October before BlizzCon.  I’m not saying that BlizzCon tanked the stock completely.  The price was already down to 65 before then.  But the week following BlizzCon it was down to 50, after which it fell into the 40s during the tough December for the market, finally dropping to its recent nadir in anticipation of the overall company not meeting its estimates.

And so it goes with public companies, where stock price and margins are everything.

When I was younger, back in college, there used to be concern about the dividends that stocks paid.  That was a key factor in their valuation.  It was, you know, an actual investment.  There were programs from companies like Coca-Cola that would allow you to buy some of their stock and then use the regular dividends to buy more so that over time you might have an investment that provided a decent income, something to help you later on in life.

That changed, largely because of Silicon Valley, with the trend in the late 80s that companies would deliver value in the form of growing stock prices.  Companies like Apple and Microsoft pay dividends rarely and very reluctantly. [Edit: Okay, those two do now, but they fought doing that for ages, and a lot of tech companies do not.]  Thus the stock market became became much more about speculation.  What was important was not how consistent a company had been in paying dividends in the past but how much the stock would be worth in the future.  You didn’t buy stock to hold but to sell.

So stock price became all important, and margins became the key measure by which Wall Street valued stock.  Margins, the ratio of expenses to revenue, as the Wall Street obsession has its own distorting effect.  You can boost margins easily by laying people off, or at least look like you’re attempt to boost margins.  You can also boost margins by buying other companies for their products rather than building your own.  Activision spending $5.9 billion to develop a mobile games library?  A huge hit to margins.  Activision buying King for $5.9 billion?  No hit to margins at all since it is assumed in all such transactions that what you bought was worth what you paid for it.  Want to know why EA buys so many studios?  That’s why.

Anyway, that is all based on my experience over the last 30 years in Silicon Valley, where the CEO, the board of directors, and the major investors all care primarily about stock prices if your company is public, and about setting up an optimum structure for going public if you are not already.  I don’t like it.  But if I attempted to avoid companies that behaved that way, which is almost every publicly held company and most larger privately held companies looking to go public, I’m not sure how I would get by.  Go read this series about what it takes to avoid the big five tech giants.

More interesting I suppose is what all this will mean for Blizzard, the one part of the company I actually care about.

On that front things do not look good.  On slide six from the investor call presentation the Blizzard portion stands out in its tepidness.

Activision Blizzard Q4 2018 Financial Results Presentation – Slide 6

You may have to click on that to view it full size for it to be legible.

Both Q4 and in 2018 overall Blizzard was third place in margins and second place in revenue, with King running close behind on that front.

Meanwhile the highlights listed are pretty stark.  Activision had a huge Q4 because that is when the release the latest Call of Duty every year, so you expect that to be huge for them.  But this year it set records.

King also showed quarter over quarter and year over year growth and was recognized for having a leading entry in the mobile games market.

And Blizzard?  I don’t think “sequential stability” is a winning phrase on Wall Street.  Signing a renewal with NetEase is nice, but I don’t think that was a surprise after BlizzCon, where we found out that they were building Diablo Immortal.

And World of Warcraft seeing “expected declines” post expansion already is downright depressing.  That used to be what happen at least a year after an expansion launched, then maybe something that was referenced six to nine months down the road.  But Battle for Azeroth launched in August, in the middle of Q3, and we’re being told that the “expected declines” hit in Q4?  That’s not good, not good at all.  I’m tempted to double down on my “early launch for WoW Classic” prediction from the beginning of the year.

I’ve already seen somebody suggest that this means that Blizzard will abandon WoW, which is ludicrous.  It doesn’t track logically at all because Blizzard doesn’t have anything else to fall back on.  Heroes of the Storm getting set aside was easy, it wasn’t a key revenue generator.  WoW is practically the company’s right leg, and the left leg, Overwatch, hasn’t been doing so well recently either.

And, on top of all of that, it has come out that Blizzard has no major “frontline” releases slated for 2019.   I am assuming that WoW Classic doesn’t count towards that and, as I have said, I expect it will do well.  But reviving the WoW subscriber base for the months that WoW Classic with be hot doesn’t sound like it will be enough.  A remaster Warcraft III isn’t going to be a big enough draw either.  And you can only have so many Hearthstone expansions in a single year.  That doesn’t leave much.

So I expect 2019 will become the year that is marked as the one that Blizzard became something else.  The departure of Mike Morhaime, the Diablo Immortal fiasco at BlizzCon, the rumors and leaks that Activision is getting more and more into the daily operation of the division to make it more like the rest of the company… a company run by a man who said he wanted to take the fun out of game development… and less like the Blizzard that could take the time to hone and polish a product before launch.

Anyway, we shall see what happens.  But I do not think it bodes well.

Other posts on this topic:

How Various Studios Deal with Problems

I’m not sure where this post started, but it assembled itself at one point a few months back and then sat in my drafts folder.   I looked at it again earlier this week, added the entry for Activision, and scheduled it for release it into the wild today.

Electronic Arts

There is no problem, the customers like it just fine.  Look at how much money we made initially.

*way, way too long later*

Okay, now that you’ve set the building on fire, sales have tanked, our company is being lambasted in the general press, and the government is saying that they may investigate us, perhaps we can look into finding some sort of solution.  But we admit no wrong doing.

Blizzard

There is no problem, things are just fine the way they are.  No, you don’t want the changes you’re yelling about.  We designed this, we know it is good.  Really, we know better.

*endless forum threads and editorials later*

Fine, have it your way, we’ll give you your feature.  But we’re going to delay it and we’ll make you work for it.  Also, we’ll make sure it doesn’t work all the time.

Activision

Yes, our numbers totally depend on an annual Call of Duty release, but we can smooth out that cycle!

*Gets on phone to Irvine*

Blizzard, stop worrying about quality and start making mobile games!  Also, put Call of Duty on your launcher!

King

We can’t live on Candy Crush Saga forever…

*releases half a dozen mobile games that go nowhere*

Crap, get some more levels out for Candy Crush Saga!

Sony Online Entertainment

We’re proposing to break the game and ruin all your fun and maybe sell your offspring to another company.  We talked about it in a conference room for a few days, so we’re pretty sure this is the right decision.  It was really, really convincing on the white board.  We didn’t run it by anybody, we just came straight from the meeting where it was decided and announced it.  So all good.

*one small riot later*

Wait, you don’t want any of that?  How strange.  Okay, we won’t do it then.

Daybreak

*sound of crickets*

Okay, we’re shutting this down and laying some people off, go away!

*sound of crickets*

CCP

We have listened to your feed back and determined that this upcoming new feature is not exploitable.

*update goes live*

Crap, you exploited it anyway… and in so many ways…  you are horrible, horrible people… let me get the band-aids.

Valve

Yes, we hear you.  We know we have a problem and we have a policy that will totally fix it.

*two beats too many*

Oh, and we might need to build something to support that policy.  But we’ll get to that later.  Also, the policy has a glaring loophole and we aren’t really following it.  Hey, is it time for another sale already?

Rockstar Games

Well, we released GTA V, what should we work on next?

*five years go by*

Cowboys again?

Riot

We are hardcore gamers, but we’re against toxicity and are masters at playing gay chicken.  Wait, no, scratch that last part.

*stands in front of “No Gurls” sign*

Equal opportunity.  Yeah.

*handed pink slip*

#@%&*!!!

Blizzard Second Among Equals in Q1 2018 Quarterly Report

Yesterday saw the release of earnings information for Activision-Blizzard for the first quarter of 2018.

As I have complained about in the past, the company has gone to great lengths to scrub all but the most basic data from these reports over the years.  Long gone is any talk of subscription numbers or line items that single out subscription revenue.  They have even reduced emphasis on their bullshit monthly average users metric.  As soon as something stops looking good they stop talking about it.

Still, they can’t hide everything.  As a public company they have to give some standard information in formats acceptable to the accounting and investment industries.  So we have, as an example, slide 9 of their presentation.

Revenues on Slide 9 of the investor presentation

This is generally where they brag about what went well.  Last year in Q1 for Blizzard in was World of Warcraft, still high on the Legion expansion, and Overwatch.  At that point Blizz was behind King for revenue, but tied with King for income, giving them the lead in margins.

This year Blizz has fallen back from that.  We expect the Activision side of the house to be in third place in any quarter when they did not have a Call of Duty release.  Still, they did pretty well year over year, largely based on Call of Duty digital sales if I read that right, but at least they have managed to get revenue out of it over more than a single quarter spike.

King grew as well.  Like each of the three segments of the company, they rely heavily on one title, Candy Crush Saga in this case.  But they managed to milk that for a lot making them both the top earner and the best in margins.

And then there is Blizzard whose revenues grew, but not by as much as the other two.  Income from that is down over last year and margins are now back in third place.

Q1 2018 Revenue and Income

The upside news from the Blizzard front seems to be mostly about keeping Legion going with updates and pre-sales of the upcoming Battle for Azeroth expansion.  Overwatch League is also mentioned, but I am not sure how much I buy that given that it is also listed under the reasons why margins have slipped.

Blizzard’s investments in “key growth initiatives” is blamed for the reduction in margins.  On them, the one I wonder about is “mobile incubation.”  With King on board I though they were handling all the mobile.  Then again, with King on board and dominating revenue, income, and margins, maybe there is a push to get the Blizzard brand on mobile in a form that makes money.

We shall see.  I suppose it is nice to see World of Warcraft still so strong, but Blizzard needs one of its newer titles to pick up some slack here as WoW declines, be that decline gentle or not.

Anyway, the reports, presentation, and audio from the call are all on the quarterly reports page of the investor relations site for Activision-Blizzard.