Activision Blizzard Announces Fourth-Quarter and 2018 Financial Results

Record Q4 and Full Year Results

SANTA MONICA, Calif.–(BUSINESS WIRE)–Activision Blizzard, Inc. (Nasdaq: ATVI) today announced fourth-quarter
2018 results.

Financial Metrics

    Q4     CY
(in millions, except EPS)     2018     Prior Outlook*     2017 2018     2017
GAAP Net Revenues $2,381     $2,236     $2,043 $7,500     $7,017
Impact of GAAP deferralsA $454 $812 $597 ($238) $139
GAAP EPS** $0.84 $0.43 ($0.77) $2.35 $0.36
Non-GAAP EPS $0.90 $0.64 $0.49 $2.72 $2.21
Impact of GAAP deferralsA $0.39 $0.63 $0.45 ($0.12) $0.07

* Prior outlook was provided by the company on November 8, 2018 in its
earnings release.
** GAAP EPS includes the impact of significant
discrete tax related items. Refer to the tables at the end of this press
release for details.

For the year ended December 31, 2018, Activision Blizzard’s net revenues
presented in accordance with GAAP were a record $7.50 billion, as
compared with $7.02 billion for 2017. GAAP net revenues from digital
channels were a record $5.79 billion. GAAP operating margin was 27%.
GAAP earnings per diluted share were a record $2.35, as compared with
$0.36 for 2017. On a non-GAAP basis, Activision Blizzard’s operating
margin was 34% and earnings per diluted share were a record $2.72, as
compared with $2.21 for 2017.

For the quarter ended December 31, 2018, Activision Blizzard’s net
revenues presented in accordance with GAAP were a record $2.38 billion,
as compared with $2.04 billion for the fourth quarter of 2017. GAAP net
revenues from digital channels were a record $1.79 billion. GAAP
operating margin was a Q4 record of 29%. GAAP earnings per diluted share
were a record $0.84, as compared with loss per share of $0.77 for the
fourth quarter of 2017. On a non-GAAP basis, Activision Blizzard’s
operating margin was a Q4 record of 35% and earnings per diluted share
were a record $0.90, as compared with $0.49 for the fourth quarter of

Activision Blizzard generated $1.79 billion in operating cash flow for
the year ended December 31, 2018, as compared to $2.21 billion for 2017.
For the quarter, operating cash flow was $999 million.

Please refer to the tables at the back of this press release for a
reconciliation of the company’s GAAP and non-GAAP results.

Bobby Kotick, Chief Executive Officer of Activision Blizzard said “While
our financial results for 2018 were the best in our history, we didn’t
realize our full potential. To help us reach our full potential, we have
made a number of important leadership changes. These changes should
enable us to achieve the many opportunities our industry affords us,
especially with our powerful owned franchises, our strong commercial
capabilities, our direct digital connections to hundreds of millions of
players, and our extraordinarily talented employees.”

Operating Metrics

For the year ended December 31, 2018, Activision Blizzard’s net bookingsB
were a record $7.26 billion, as compared with $7.16 billion for
2017, below our prior outlook. Net bookingsB from digital
channels were a record $5.72 billion, as compared with $5.43 billion for
2017, and in-game net bookingsB were a record of $4.2 billion.

For the quarter ended December 31, 2018, Activision Blizzard’s net
bookingsB were a record $2.84 billion, compared with $2.64
billion for the fourth quarter of 2017, below our prior outlook. Net
bookingsB from digital channels were a record $1.88 billion,
as compared with $1.62 billion for the fourth quarter of 2017, and
in-game net bookingsB were a record of $1.2 billion.

Selected Business Highlights


  • Activision had 53 million Monthly Active Users (MAUs)C in
    the quarter, growing double-digits quarter-over-quarter. Fourth
    quarter segment revenues grew 6% year-over-year to $1.41 billion and
    operating income increased 14% year-over-year to $723 million.
  • Call of Duty® was
    again the number-one selling console franchise worldwide for the year,
    a franchise feat accomplished for nine of the last 10 years.1 In
    its launch quarter, Call of Duty: Black Ops 4
    sold-through more units than Call of Duty: Black Ops III,
    with PC units more than tripling. Full-game downloads were over 40% of Call
    of Duty: Black Ops 4
    console sell-through, versus
    approximately 30% for the prior release, Call of Duty: WWII.
  • The successful launch of Spyro® Reignited
    in the fourth quarter and the ongoing contribution of Crash
    Bandicoot™ N. Sane Trilogy
    , which has sold-in over 10
    million units since its 2017 release, highlight the enduring nature of
    Activision’s classic franchises.


  • Blizzard had 35 million MAUsC in the quarter, as Overwatch®
    and Hearthstone® saw sequential
    stability and World of Warcraft®
    saw expected declines post-expansion-launch. Fourth quarter segment
    revenues grew 15% year-over-year to $686 million and operating income
    increased 51% year-over-year to $241 million.
  • Building on an 11-year partnership, Blizzard extended its joint
    venture with NetEase to publish its games in China through January


  • King had 268 million MAUsC in the quarter, growing
    sequentially, driven by the successful launch of Candy Crush
    Friends Saga
    TM. Fourth quarter
    segment revenues grew 5% year-over-year to $543 million and operating
    income increased 28% year-over-year to $207 million.
  • Candy Crush Friends Saga saw strong monetization and
    retention trends, contributing incremental growth for the Candy
    TM franchise, which grew net
    bookingsB and MAUsC year-over-year and
    quarter-over-quarter. This quarter, King had two of the top-10
    highest-grossing titles in the U.S. mobile app stores for twenty-one
    quarters in a row, with Candy Crush SagaTM
    at #1 again.2
  • Advertising in the King network was again profitable with net bookingsB
    growing over 50% sequentially.

Company Outlook

In 2019, the company will increase development investment in its biggest
franchises, enabling teams to accelerate the pace and quality of content
for their communities and supporting a number of new product
initiatives. The number of developers working on Call of Duty,
Candy Crush, Overwatch, Warcraft®,
Hearthstone and Diablo®
in aggregate will increase approximately 20% over the course of 2019.
The company will fund this greater investment by de-prioritizing
initiatives that are not meeting expectations and reducing certain
non-development and administrative-related costs across the business.
The company is also integrating its global and regional sales and
go-to-market, partnerships, and sponsorships capabilities. As part of
these restructuring actions, the company expects to incur a GAAP-only
pre-tax charge of approximately $150 million, the majority of which is
expected to be incurred this year.

(in millions, except EPS)    

GAAP Outlook

    Non-GAAP Outlook     Impact of GAAP deferralsA

CY 2019

Net Revenues $6,025 $6,025 $275
EPS $1.18 $1.85 $0.25
Fully Diluted Shares 775 775

Q1 2019

Net Revenues $1,715 $1,715 ($540)
EPS $0.39 $0.63 ($0.43)

Fully Diluted Shares

772 772

Net bookingsB are expected to be $6.30 billion for 2019 and
$1.18 billion for the first quarter of 2019.

Currency Assumptions for 2019 Outlook:

  • $1.13 USD/Euro for current outlook (vs. average of $1.12 for 2018,
    $1.12 for 2017, and $1.11 for 2016); and
  • $1.26 USD/British Pound Sterling for current outlook (vs. average of
    $1.30 for 2018, $1.30 for 2017 and $1.36 for 2016).
  • Note: Our financial guidance includes the forecasted impact of our FX
    hedging program.

Capital Allocation

The Board of Directors declared a cash dividend of $0.37 per common
share, payable on May 9, 2019 to shareholders of record at the close of
business on March 28, 2019, which represents a 9% increase from 2018.
Additionally, the Board of Directors authorized a new two-year stock
repurchase program under which the company is authorized to repurchase
up to $1.5 billion of its outstanding common stock during the period.

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a
conference call and webcast to discuss the company’s results for the
quarter ended December 31, 2018 and management’s outlook for the
remainder of the calendar year. The company welcomes all members of the
financial and media communities and other interested parties to visit
to listen to the conference call via live Webcast or to listen to the
call live by dialing into 866-548-4713 in the U.S. with passcode
9678578. A replay of the call will also be available after the call’s
conclusion and archived for one year at

About Activision Blizzard

Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is
the world’s most successful standalone interactive entertainment
company. We delight hundreds of millions of monthly active users around
the world through franchises including Activision’s Call of Duty®,
Spyro™, and Crash™, Blizzard Entertainment’s World of Warcraft®,
Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®,
and King’s Candy Crush™, Bubble Witch™, and Farm Heroes™. The company is
one of the Fortune “100 Best Companies To Work For®.” Headquartered in
Santa Monica, California, Activision Blizzard has operations throughout
the world. More information about Activision Blizzard and its products
can be found on the company’s website,

1 The NPD Group, GfK, GSD and internal estimates, based on
dollar sales of front line games.

2 U.S. ranking for Apple App Store and Google Play Store
combined, per App Annie Intelligence for fourth quarter of 2018.

A Net effect of accounting treatment from revenue deferrals
on certain of our online-enabled products. Since certain of our games
are hosted online or include significant online functionality that
represents a separate performance obligation, we defer the transaction
price allocable to the online functionality from the sale of these games
and recognize the attributable revenues over the relevant estimated
service periods, which are generally less than a year. The related cost
of revenues is deferred and recognized as an expense as the related
revenues are recognized. Impact from changes in deferrals refers to the
net effect from revenue deferrals accounting treatment for the purposes
of revenues, along with, for the purposes of EPS, the related cost of
revenues deferrals treatment and the related tax impacts. Internally,
management excludes the impact of this change in deferred revenues and
related cost of revenues when evaluating the company’s operating
performance, when planning, forecasting and analyzing future periods,
and when assessing the performance of its management team. Management
believes this is appropriate because doing so enables an analysis of
performance based on the timing of actual transactions with our
customers. In addition, management believes excluding the change in
deferred revenues and the related cost of revenues provides a much more
timely indication of trends in our operating results.

B Net bookings is an operating metric that is defined
as the net amount of products and services sold digitally or sold-in
physically in the period, and includes license fees, merchandise, and
publisher incentives, among others, and is equal to net revenues
excluding the impact from deferrals.

C Monthly Active User (“MAU”) Definition: We monitor
MAUs as a key measure of the overall size of our user base. MAUs are the
number of individuals who accessed a particular game in a given month.
We calculate average MAUs in a period by adding the total number of MAUs
in each of the months in a given period and dividing that total by the
number of months in the period. An individual who accesses two of our
games would be counted as two users. In addition, due to technical
limitations, for Activision and King, an individual who accesses the
same game on two platforms or devices in the relevant period would be
counted as two users. For Blizzard, an individual who accesses the same
game on two platforms or devices in the relevant period would generally
be counted as a single user.

Non-GAAP Financial Measures: As a supplement to our financial
measures presented in accordance with Generally Accepted Accounting
Principles (“GAAP”), Activision Blizzard presents certain non-GAAP
measures of financial performance. These non-GAAP financial measures are
not intended to be considered in isolation from, as a substitute for, or
as more important than, the financial information prepared and presented
in accordance with GAAP. In addition, these non-GAAP measures have
limitations in that they do not reflect all of the items associated with
the company’s results of operations as determined in accordance with

Activision Blizzard provides net income (loss), earnings (loss) per
share, and operating margin data and guidance both including (in
accordance with GAAP) and excluding (non-GAAP) certain items. When
relevant, the company also provides constant FX information to provide a
framework for assessing how our underlying businesses performed
excluding the effect of foreign currency rate fluctuations. In addition,
Activision Blizzard provides EBITDA (defined as GAAP net income (loss)
before interest (income) expense, income taxes, depreciation, and
amortization) and adjusted EBITDA (defined as non-GAAP operating margin
(see non-GAAP financial measure below) before depreciation). The
non-GAAP financial measures exclude the following items, as applicable
in any given reporting period and our outlook:

  • expenses related to stock-based compensation;
  • the amortization of intangibles from purchase price accounting;
  • fees and other expenses related to the King acquisition, including
    related debt financings, and refinancing of long-term debt, including
    penalties and the write off of unamortized discount and deferred
    financing costs;
  • restructuring charges;
  • other non-cash charges from reclassification of certain cumulative
    translation adjustments into earnings as required by GAAP;
  • the income tax adjustments associated with any of the above items (tax
    impact on non-GAAP pre-tax income is calculated under the same
    accounting principles applied to the GAAP pre-tax income under ASC
    740, which employs an annual effective tax rate method to the
    results); and
  • significant discrete tax-related items, including amounts related to
    changes in tax laws (including the Tax Cuts and Jobs Act enacted in
    December 2017), amounts related to the potential or final resolution
    of tax positions, and other unusual or unique tax-related items and

In the future, Activision Blizzard may also consider whether other items
should also be excluded in calculating the non-GAAP financial measures
used by the company. Management believes that the presentation of these
non-GAAP financial measures provides investors with additional useful
information to measure Activision Blizzard’s financial and operating
performance. In particular, the measures facilitate comparison of
operating performance between periods and help investors to better
understand the operating results of Activision Blizzard by excluding
certain items that may not be indicative of the company’s core business,
operating results, or future outlook. Additionally, we consider
quantitative and qualitative factors in assessing whether to adjust for
the impact of items that may be significant or that could affect an
understanding of our ongoing financial and business performance or
trends. Internally, management uses these non-GAAP financial measures,
along with others, in assessing the company’s operating results, and
measuring compliance with the requirements of the company’s debt
financing agreements, as well as in planning and forecasting.

Activision Blizzard’s non-GAAP financial measures are not based on a
comprehensive set of accounting rules or principles, and the terms
non-GAAP net income, non-GAAP earnings per share, non-GAAP operating
margin, and non-GAAP or adjusted EBITDA do not have a standardized
meaning. Therefore, other companies may use the same or similarly named
measures, but exclude different items, which may not provide investors a
comparable view of Activision Blizzard’s performance in relation to
other companies.

Management compensates for the limitations resulting from the exclusion
of these items by considering the impact of the items separately and by
considering Activision Blizzard’s GAAP, as well as non-GAAP, results and
outlook, and by presenting the most comparable GAAP measures directly
ahead of non-GAAP measures, and by providing a reconciliation that
indicates and describes the adjustments made.

Cautionary Note Regarding Forward-looking Statements: The
statements contained herein that are not historical facts are
forward-looking statements, including, but not limited to, statements
about: (1) projections of revenues, expenses, income or loss, earnings
or loss per share, cash flow or other financial items; (2) statements of
our plans and objectives, including those related to releases of
products and services and restructuring activities; (3) statements of
future financial or operating performance, including the impact of tax
items thereon; and (4) statements of assumptions underlying such
statements. The company generally uses words such as “outlook,”
“forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,”
“plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,”
“anticipates,” “estimate,” “future,” “positioned,” “potential,”
“project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,”
and other similar expressions to help identify forward-looking
statements. Forward-looking statements are subject to business and
economic risks, reflect management’s current expectations, estimates,
and projections about our business, and are inherently uncertain and
difficult to predict.

The company cautions that a number of important factors could cause
Activision Blizzard’s actual future results and other future
circumstances to differ materially from those expressed in any
forward-looking statements. Such factors include, but are not limited
to: sales levels of Activision Blizzard’s titles, products, and
services; concentration of revenue among a small number of titles;
Activision Blizzard’s ability to predict consumer preferences, including
interest in specific genres and modes, and preferences among platforms;
the continued growth in the scope and complexity of our business,
including the diversion of management time and attention to issues
relating to the operations of our newly acquired or started businesses
and the potential impact of our expansion into new businesses on our
existing businesses; the execution of our restructuring activities; the
amount of our debt and the limitations imposed by the covenants in the
agreements governing our debt; counterparty risks relating to customers,
licensees, licensors, and manufacturers; maintenance of relationships
with key personnel, customers, financing providers, licensees,
licensors, manufacturers, vendors, and third-party developers, including
the ability to attract, retain, and motivate key personnel and
developers that can create high-quality titles, products, and services;
changing business models within the video game industry, including
digital delivery of content and the increased prevalence of free-to-play
games; product delays or defects; competition, including from other
forms of entertainment; rapid changes in technology and industry
standards; possible declines in software pricing; product returns and
price protection; the identification of suitable future acquisition
opportunities and potential challenges associated with geographic
expansion; the seasonal and cyclical nature of the interactive
entertainment market; the outcome of current or future tax disputes;
litigation risks and associated costs; protection of proprietary rights;
potential data breaches and other cybersecurity risks; shifts in
consumer spending trends; capital market risks; the impact of applicable
laws, rules, and regulations, including changes in those laws, rules,
and regulations; domestic and international economic, financial, and
political conditions and policies; tax rates and foreign exchange rates;
the impact of the current macroeconomic environment; and the other
factors identified in “Risk Factors” included in Part I, Item 1A of our
Annual Report on Form 10-K for the year ended December 31, 2017.

The forward-looking statements in this press release are based on
information available to the company at this time and we assume no
obligation to update any such forward-looking statements. Although these
forward-looking statements are believed to be true when made, they may
ultimately prove to be incorrect. These statements are not guarantees of
our future performance and are subject to risks, uncertainties, and
other factors, some of which are beyond our control and may cause actual
results to differ materially from current expectations.





(Amounts in millions, except per share data)

Three Months Ended December 31, Year Ended December 31,




Net revenues
Product sales $ 808 $ 737 $ 2,255 $ 2,110
Subscription, licensing, and other revenues2 1,573   1,306   5,245   4,907
Total net revenues 2,381 2,043 7,500 7,017
Costs and expenses
Cost of revenues—product sales:
Product costs 303 310 719 733
Software royalties, amortization, and intellectual property licenses 157 101 371 300
Cost of revenues—subscription, licensing, and other:
Game operations and distribution costs 251 268 1,028 984
Software royalties, amortization, and intellectual property licenses 121 124 399 484
Product development 325 318 1,101 1,069
Sales and marketing 321 479 1,062 1,378
General and administrative 209   222   832   760
Total costs and expenses 1,687   1,822   5,512   5,708
Operating income 694 221 1,988 1,309
Interest and other expense (income), net 4 36 71 146
Loss on extinguishment of debt     40   12
Income before income tax expense 690 185 1,877 1,151
Income tax expense 40 769 64 878
Net income (loss) $ 650   $ (584 ) $ 1,813   $ 273
Basic earnings (loss) per common share $ 0.85 $ (0.77 ) $ 2.38 $ 0.36
Weighted average common shares outstanding 763 757 762 754
Diluted earnings (loss) per common share $ 0.84 $ (0.77 ) $ 2.35 $ 0.36
Weighted average common shares outstanding assuming dilution 771 757 771 766

We adopted a new revenue accounting standard in the first quarter
of 2018. The impacts of the new revenue accounting standard are
reflected in our financial information as of and for the three
months and year ended December 31, 2018. Prior period results have
not been restated to reflect this change in accounting standards.
Refer to our forthcoming Form 10-K for the year ending December
31, 2018 for additional information.

2 Subscription, licensing, and other revenues represent revenues from
World of Warcraft subscriptions, licensing royalties from our
products and franchises, downloadable content, microtransactions,
and other miscellaneous revenues.




(Amounts in millions)


December 31, 20181

December 31, 2017
Current assets
Cash and cash equivalents $ 4,225 $ 4,713
Accounts receivable, net 1,035 918
Inventories, net 43 46
Software development 264 367
Other current assets 539   476  
Total current assets 6,106 6,520
Software development 65 86
Property and equipment, net 282 294
Deferred income taxes, net 403 459
Other assets 482 440
Intangible assets, net 735 1,106
Goodwill 9,762   9,763  
Total assets $ 17,835   $ 18,668  
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $ 253 $ 323
Deferred revenues 1,493 1,929
Accrued expenses and other liabilities 896   1,411  
Total current liabilities 2,642 3,663
Long-term debt, net 2,671 4,390
Deferred income taxes, net 18 21
Other liabilities 1,147   1,132  
Total liabilities 6,478   9,206  
Shareholders’ equity
Common stock
Additional paid-in capital 10,963 10,747
Treasury stock (5,563 ) (5,563 )
Retained earnings 6,558 4,916
Accumulated other comprehensive loss (601 ) (638 )
Total shareholders’ equity 11,357   9,462  
Total liabilities and shareholders’ equity $ 17,835   $ 18,668  


Activision Blizzard, Inc.

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