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Activision Blizzard Third Quarter 2022 Financial Results - Microsoft Merger Expected Mid-2023
Blizzard
Опубликовано
07.11.2022 в 18:01
Archimtiros
Activision Blizzard has released its
third quarter financial results
for the year of 2022, announcing stronger-than-expected earnings and reaffirming that the Microsoft merger is expected to complete by the middle of next year, though an interesting footnote indicates there may be some future disruption for Blizzard Entertainment titles in China.
Due to the pending
acquisition by Microsoft
, the financial results have been presented without the usual conference call, though a quote from CEO Bobby Kotick congratulated employees on the huge success of recent releases and stating that the Microsoft merger is expected to close by June 2023.
CEO Bobby Kotick
"Our games are the result of passion and excellence. This comes from an environment that fosters inspiration, creativity, and an unwavering commitment to develop and support our talent. Our employees’ dedication and teamwork are at the heart of an extraordinary workplace that enables the magic embodied in our games. We look forward to continuing to release epic entertainment in service of our global community of players as a part of Microsoft, one of the world’s most admired companies. We continue to expect that our transaction will close in Microsoft’s current fiscal year ending June 2023."
Big Trouble in Little China?
While most franchises are experiencing increased player retention and profits, an interesting footnote in the Blizzard Entertainment section of the quarterly report indicates there may be some future disruption in Blizzard operations in China, citing difficulty in renewing publishing agreements.
Investor Earnings Report
Currently, we have licensing agreements with a third party covering the publication of several Blizzard titles in China. These agreements, which contributed approximately 3% of Activision Blizzard's consolidated net revenues in 2021, expire in January 2023. We are in discussions regarding the renewal of these agreements, but a mutually-satisfactory deal may not be reached. We continue to see substantial long-term growth opportunities for our business in the country. The co-development and publishing of Diablo Immortal is covered by a separate long-term agreement.
While China does not contribute a significant portion of Activision Blizzard's total revenue, citing it as only 3% of the company's consolidated revenue, it is an important market for Blizzard Entertainment specifically, where World of Warcraft, Diablo, and Hearthstone specifically are much more popular. Although the investor earning report is light on details, the unnamed third party is NetEase, one of the largest internet companies in the world, which has published Blizzard Entertainment games since 2008. In 2019, they expanded their relationship into games development - working together to create Diablo Immortal, which despite criticism, has been very successful, particularly in China where it has ranked in the top 10 grossing mobile games since it's launch last July.
With such a long and successful business relationship, it's interesting that the two are now having difficulty renewing their partnership, although failing to do so doesn't necessarily mean an end to Blizzard games in China. While NetEase operates Blizzard Entertainment games in China, Tencent is actually the publishing partner for Call of Duty, Candy Crush, and other Activision Blizzard titles. While they may not necessarily be a factor in the negotiations between Blizzard and NetEase, it's completely possible they could take over operations if the current partnership is not renewed. The real question for Chinese players will be whether there will be any disruption of service or new content launch delays as a result.
Highlights
Overall financial performance declined year-over-year, primarily reflecting lower results for Call of Duty and product cycle timing at Blizzard Entertainment, enough to offset otherwise robust growth at King. Although not offering future projections, the news of
Diablo Immortal's launch
, Diablo 4 internal testing, Overwatch 2 public testing, an upcoming Warcraft Mobile announcement, and teasing CoD 2022 as the most advanced experience to date all suggest renewed growth over the remaining year.
Activision - 97 million monthly active users, up from 94 million in Q2 2022
Call of Duty: Modern Warfare II has broken records as the fastest-selling title in the history of the Call of Duty franchise, becoming the first in the series to pass over the $1 billion sell-through mark, while logging 40% more hours played in the first 10 days than the previous franchise record.
Since its October 28 launch, Call of Duty: Modern Warfare II has set new records for our largest franchise, becoming the fastest premium Call of Duty release to cross $1 billion in sell-through. Sales have been robust across all platforms, including on PC, where unit sell-through to date is approximately twice the level of recent strong titles in the series. Modern Warfare II has set new franchise engagement records for a premium Call of Duty release, with hours played in the first 10 days more than 40% above the prior franchise record.
On November 16, alongside the first season of in-game content for Modern Warfare II, Activision will release Call of Duty: Warzone 2.0. This all-new, free-to-play Call of Duty experience encompasses a wide array of learnings gained from the highly successful original Warzone. Tightly integrated with the premium game, Warzone 2.0 extends the Modern Warfare universe while bringing compelling new sandbox experiences to the franchise from day one, with further exciting content planned for the coming months.
In the third quarter, Activision also unveiled Call of Duty: Warzone Mobile, planned for full release in 2023. Internally developed on the same engine as Modern Warfare II and Warzone 2.0, the game will offer our community compelling battle royale gameplay on mobile as well as shared social features and cross-progression with the console and PC experiences. Over 20 million people have already pre-registered for the game on Google Play.
Following a three-year period in which Call of Duty reached well over half a billion players and delivered a step change increase in engagement and player investment, these launches mark the start of a new era intended to take the franchise to new heights. Activision is looking forward to building on its current momentum in 2023, with plans for next year including the most robust Call of Duty live operations to date, the next full premium release in the blockbuster annual series, and even more engaging free-to-play experiences across platforms.
Activision’s third quarter financial performance was lower year-over-year, primarily reflecting reduced engagement for Call of Duty following the weaker reception for last year's premium release. In-game net bookings on console and PC again grew sequentially in the third quarter versus the second quarter, contributing to sequential growth in segment operating income. Segment revenue and operating income are expected to return to strong year-over-year growth in the fourth quarter following the successful launch of Modern Warfare II.
Blizzard Entertainment - 31 million monthly active users, up from 27 million in Q2 2022
In a rare twist, Blizzard gained nearly 5 million monthly active users, largely attributed to the release of Diablo: Immortal, of which over half the game's player accounts are new to Blizzard.
October 4 saw the global launch of Overwatch 2, with a free-to-play model designed to allow more people than ever before to experience the acclaimed team-based action game. Over 35 million people played the game in its first month, including many who were new to Overwatch. The expanded community is engaging deeply, with average daily player numbers for the first month of Overwatch 2 more than double that of its acclaimed predecessor. Player investment is also off to a strong start, positioning the title to be a meaningful contributor to Blizzard's business in the fourth quarter. Blizzard is looking forward to delivering an ambitious slate of regular seasonal updates for Overwatch 2 that introduce new characters, maps and modes, including the game’s much-anticipated PvE mode planned for 2023.
In the Warcraft franchise, the September 26 release of World of Warcraft: Wrath of the Lich King Classic contributed to a strong increase in WoW reach and engagement at the end of the third quarter. On November 28, Blizzard will release World of Warcraft: Dragonflight, the innovative next expansion for the modern game, as the team increases the cadence of WoW content for the community. Elsewhere in the Warcraft franchise, mobile title Warcraft: Arclight Rumble is progressing well through regional testing.
On mobile, Diablo Immortal expanded its global reach with a strong launch in China in July. The title reached the top of the download charts and has ranked in the top 10 grossing mobile games in China since launch. Around the world, Diablo Immortal is being supported with major new content, features, and events aimed at keeping the community engaged. Meanwhile, work on Diablo IV and its substantial ongoing post-launch content continues to progress very well ahead of its launch planned for 2023.
Blizzard’s third quarter segment revenue grew double-digits year-over-year against a year ago quarter that included the release of Diablo II: Resurrected. The third quarter benefited from the recent launch of Diablo Immortal, while Warcraft franchise net bookings were stable year-over-year. Segment operating margin was lower year-over-year, due to marketing investment to support the strong release slate and the shift in the mix of business in the quarter.
Currently, we have licensing agreements with a third party covering the publication of several Blizzard titles in China. These agreements, which contributed approximately 3% of Activision Blizzard's consolidated net revenues in 2021, expire in January 2023. We are in discussions regarding the renewal of these agreements, but a mutually-satisfactory deal may not be reached. We continue to see substantial long-term growth opportunities for our business in the country. The co-development and publishing of Diablo Immortal is covered by a separate long-term agreement.
King - 240 million monthly active users, equal to 240 million in Q2 2022
King’s in-game net bookings increased 8% year-over-year, driven by the Candy Crush franchise, reflecting ongoing strong execution across live operations and user acquisition. King’s payer numbers again increased by a double-digit percentage year-over-year.
King continues to introduce more player-versus-player features within Candy Crush, fueling engagement and player investment. Time spent within Candy grew year-over-year for a fifth successive quarter, and Candy Crush was the top-grossing game franchise in the U.S. app stores1 for the 21st quarter in a row.
King’s third quarter segment revenue grew 6% year-over-year, equivalent to low double-digit growth on a constant currency basisE. Advertising revenue was consistent year-over-year despite a challenging macro environment. King’s third quarter operating margin was lower year-over-year, due to the year ago quarter benefiting from insurance claim proceeds.
This November marks the 10-year anniversary of Candy Crush Saga, the original and largest title in the Candy Crush franchise. Candy Crush enters its second decade in strong health, with over 200 million monthly active users and with player investment at record levels. King’s development, commercial and analytics teams are working on a strong pipeline of content and initiatives expected to delight the community and drive further growth in the coming years.
Due to the pending
acquisition by Microsoft
, the financial results are presented
without the usual conference call
, and therefore no Q&A has taken place.
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