Activision Blizzard Announces Fourth Quarter and 2022 Financial Results

Fourth Quarter Net Bookings Grew 43% Year-Over-Year to a Quarterly Record

Fourth Quarter Mobile Net Bookings Grew Mid-Teens Year-over-Year

Fourth Quarter In-Game Net Bookings Grew 46% Year-Over-Year

SANTA MONICA, Calif.–(BUSINESS WIRE)–Activision Blizzard, Inc. (Nasdaq: ATVI) today announced fourth quarter 2022 results.

Bobby Kotick, CEO of Activision Blizzard, shared, “We ended 2022 with record quarterly net bookings as we delivered on our mission to bring epic joy to players. I’m grateful to our talented and hardworking teams for their many successes entertaining our hundreds of millions of players around the world. We look forward to a historic year, as we work toward merging with Microsoft. This merger will enable us to better serve our players, create greater opportunities for our employees, and allow us to succeed in an increasingly competitive global gaming industry.”

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

For the year ended December 31, 2022, Activision Blizzard’s net revenues presented in accordance with GAAP were $7.53 billion, as compared with $8.80 billion for 2021. GAAP net revenues from digital channels were $6.63 billion. GAAP operating margin was 22%. GAAP earnings per diluted share was $1.92, as compared with $3.44 for 2021. On a non-GAAP basis, Activision Blizzard’s operating margin was 30% and earnings per diluted share was $2.58, as compared with $4.08 for 2021.

For the quarter ended December 31, 2022, Activision Blizzard’s net revenues presented in accordance with GAAP were $2.33 billion, as compared with $2.16 billion for the fourth quarter of 2021. GAAP net revenues from digital channels were $1.97 billion. GAAP operating margin was 16%. GAAP earnings per diluted share was $0.51, as compared with $0.72 for the fourth quarter of 2021. On a non-GAAP basis, Activision Blizzard’s operating margin was 24% and earnings per diluted share was $0.78, as compared with $1.01 for the fourth quarter of 2021.

Activision Blizzard generated $2.22 billion in operating cash flow for the year ended December 31, 2022, as compared with $2.41 billion for 2021. Activision Blizzard generated $1.12 billion in operating cash flow for the quarter as compared with $661 million for the fourth quarter of 2021.

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

Operating Metrics

For the year ended December 31, 2022, Activision Blizzard’s net bookings^B were $8.51 billion, as compared with $8.35 billion for 2021. In-game net bookings^C were $5.38 billion, as compared with $5.10 billion for 2021.

For the quarter ended December 31, 2022, Activision Blizzard’s net bookings^B were $3.57 billion, as compared with $2.49 billion for the fourth quarter of 2021. In-game net bookings^C were $1.82 billion, as compared with $1.24 billion for the fourth quarter of 2021.

For the quarter ended December 31, 2022, overall Activision Blizzard Monthly Active Users (MAUs)^D were 389 million.

Microsoft transaction

As announced on January 18, 2022, Microsoft plans to acquire Activision Blizzard for $95.00 per share in an all-cash transaction. The transaction has been approved by the boards of directors of both Activision Blizzard and Microsoft and by Activision Blizzard’s stockholders. The two parties are continuing to engage with regulators reviewing the transaction and are working toward closing it in Microsoft’s fiscal year ending June 30 2023, subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions.

Conference Call and Earnings Presentation

In light of the proposed transaction with Microsoft, and as is customary during the pendency of an acquisition, Activision Blizzard will not be hosting a conference call, issuing an earnings presentation, or providing detailed quantitative financial guidance in conjunction with its fourth quarter 2022 earnings release. For further detail and discussion of our financial performance please refer to our upcoming Annual Report on Form 10-K for the year ended December 31, 2022.

Selected Business Highlights

Activision Blizzard delivered 43% year-over-year net bookings growth and record segment financial results in the fourth quarter. Net bookings grew 49% year-over-year on a constant currency basis^E. Amid an uncertain macro environment, our focus on expanding key intellectual properties across platforms, geographies and business models positions the business for further growth.

Strong execution by our talented teams enabled each of our business units to break records in the fourth quarter. At Activision, Call of Duty^®: Modern Warfare^® II delivered the highest opening-quarter sell-through in franchise history. Blizzard reported its highest quarterly net bookings to date, driven by strong growth for Warcraft^®and the reinvigoration of Overwatch^® and Diablo^®. At King, Candy Crush^® once again delivered a record performance. Activision Blizzard net bookings on the mobile platform grew mid-teens year-over-year while overall in-game net bookings grew 46% year-over-year.

Our robust product pipeline, live game opportunity, and ongoing focus on operational discipline create a foundation for strong financial performance in 2023. While we remain cognizant of risks, including those related to our execution, economic conditions, the labor market, and exchange rates, we expect at least high-teens year-over-year growth for GAAP revenue, and at least high-single digit year-over-year growth in net bookings and total segment operating income for 2023. We also expect interest income to be significantly higher year-over-year in 2023 given the current rate environment.

For the first quarter, we expect at least high-teens year-over-year growth for GAAP revenue, at least mid-teens year-over-year growth for net bookings, and at least high-single digit year-over-year growth for total segment operating income. The first quarter will see significant development and marketing investment in live operations and future releases, including the June launch of Diablo IV.

In the fourth quarter we continued to invest in growing our development teams and in our goal of being the model workplace in our industry. Our game development teams grew over 25% year-over-year in 2022. We shared our latest representation update in the quarter, which showed that we increased our representation for those who identify as women or non-binary to 26% globally, as of the end of November, versus 24% a year earlier. Representation for underrepresented ethnic groups increased to 38% from 36% in the US over the same period.

Activision

• Activision segment revenue and operating income grew approximately 60% year-over-year in the fourth quarter, driven by the performance of Call of Duty across console, PC and mobile.

• Following its October launch, Call of Duty: Modern Warfare II delivered the highest opening-quarter sell-through in franchise history. The strong performance was broad-based, and digital sales were particularly robust on PC and in Asia-Pacific after Activision expanded distribution of the title to Steam’s PC digital storefront. At the end of the fourth quarter, cumulative hours played were the highest in franchise history for a premium title at this stage of its release.

• The November release of Warzone™ 2.0, including its new DMZ mode, also contributed to a strong year-over-year increase in franchise reach and engagement on console and PC in the fourth quarter, as well as record quarterly player investment. Year-over-year engagement growth in the free title has moderated following the launch, although next week sees the launch of Season 2, which will include new content, modes and gameplay updates aimed at delighting the community and accelerating growth. Our teams are also looking forward to further expanding the Warzone community with the release of Call of Duty: Warzone Mobile™ planned for this year.

• Fourth quarter Call of Duty Mobile net bookings grew double-digits year-over-year to a new quarterly record, driven by enhancements to the player experience and well-received seasonal content.

• Across the Call of Duty franchise, our teams are working to amplify the success of the fourth quarter, with 2023 plans including even more engaging live services across platforms and the next full annual premium release in the blockbuster series.

Blizzard

• 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.

King

• King continued to outperform amid a challenging backdrop for mobile games. Fourth quarter segment revenue grew 6% year-over-year, equivalent to low double-digit growth on a constant currency basis^E. King’s fourth quarter segment operating income was lower year-over-year, due to the year ago quarter benefiting from lower cash compensation expense and insurance claim proceeds.

• King’s in-game net bookings increased 9% year-over-year, driven by the Candy Crush franchise. Candy Crush was the top-grossing game franchise in the U.S. app stores¹ for the 22nd quarter in a row. King advertising revenue was stable year-over-year despite an ongoing difficult macro environment for digital advertising.

• Candy Crush Saga™, the largest title in the Candy Crush franchise, celebrated its 10-year anniversary in November. In-game net bookings for the title grew approximately 20% year-over-year for every quarter of 2022, driven by continuous live operations improvements and highly-effective user acquisition. The team sees further opportunities to increase engagement, retention and payer conversion in the title, including through further social and competitive features and deeper seasonal content. In 2023, King will also intensify focus on applying its proven live operations strategy to other games in the portfolio.

Balance Sheet

• Cash and short-term investments at the end of the fourth quarter stood at $12.1 billion, and Activision Blizzard ended the quarter with a net cash^F position of approximately $8.4 billion.

Service Periods for Games

As we have continued to focus on delivering increased content to our players and to deliver such content more frequently through in-game updates, certain of our games are seeing player engagement and monetization over longer periods of time. This has resulted in certain expenses, including capitalized software cost amortization, and GAAP revenues being recognized over longer periods of time than in prior years. Additionally, these elongations have resulted in an increased portion of our capitalized software costs being classified as non-current on our consolidated balance sheet. For further details and discussion, refer to our upcoming Annual Report on Form 10-K for the year ended December 31, 2022.

Activision Blizzard Disclosure Channels to Disseminate Information

Activision Blizzard, Inc. (“Activision Blizzard”) discloses information to the public concerning Activision Blizzard, Activision Blizzard’s products, content and services, and other items through a variety of disclosure channels in order to achieve broad, non-exclusionary distribution of information to the public. Some of the information distributed through these disclosure channels may be considered material information. Investors and others are encouraged to review the information we make public in the locations below.² This list may be updated from time to time.

• For information concerning Activision Blizzard and its products, content and services, please visit: https://www.activisionblizzard.com.

• For information provided to the investment community, including news releases, events and presentations, and filings with the U.S. Securities and Exchange Commission, please visit: https://investor.activision.com.

• For the latest information from Activision Blizzard, including press releases and the Activision Blizzard blog, please visit: https://www.activisionblizzard.com/newsroom.

• For additional information, please follow Activision Blizzard’s and Lulu Cheng Meservey’s (Activision Blizzard’s Executive Vice President, Corporate Affairs and Chief Communications Officer) Twitter accounts: https://twitter.com/atvi_ab and https://twitter.com/lulumeservey. Except with respect to communications regarding Activision Blizzard, Ms. Meservey’s social media communications from https://twitter.com/lulumeservey are personal communications of Ms. Meservey and are not communications on behalf of Activision Blizzard.

About Activision Blizzard

Our mission, to connect and engage the world through epic entertainment, has never been more important. Through communities rooted in our video games we enable hundreds of millions of people to experience joy, thrill and achievement. We enable social connections through the lens of fun, and we foster purpose and a sense of accomplishment through healthy competition. Like sport, but with greater accessibility, our players can find purpose and meaning through competitive gaming. Video games, unlike any other social or entertainment media, have the ability to break down the barriers that can inhibit tolerance and understanding. Celebrating differences is at the core of our culture and ensures we can create games for players of diverse backgrounds in the 190 countries our games are played.

As a member of the Fortune 500 and as a component company of the S&P 500, we have an extraordinary track record of delivering superior shareholder returns for over 30 years. Our sustained success has enabled the company to support corporate social responsibility initiatives that are directly tied to our games. As an example, our Call of Duty Endowment has helped find employment for over 100,000 veterans.

Learn more information about Activision Blizzard and how we connect and engage the world through epic entertainment on the company’s website, www.activisionblizzard.com.

¹ Based on data.ai Intelligence

² These corporate websites and social media channels, and the contents thereof, are not incorporated by reference into this press release nor deemed filed with the U.S. Securities and Exchange Commission.

^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 then 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.

In the fourth quarter of 2022, the Company completed its annual assessment of the estimated service periods for players of our games. We have noted that players who purchase in-game content are playing certain of our titles, notably those in our Call of Duty and World of Warcraft offerings, for longer periods of time than in prior years as they engage with services we provide that are designed to enhance and extend gameplay. As such, we have concluded that the estimated service period for in-game revenues from such games has lengthened by approximately 3 months.

Based on the carrying amount of deferred revenue and deferred cost of revenue as of September 30, 2022, the change resulted in a decrease in net revenues recognized of $103 million, a decrease in cost of revenues recognized of $9 million, and a decrease in earnings per diluted share of $0.10 during the three months ended December 31, 2022. Such amounts will now be recognized during the year ended December 31, 2023. The change in the estimated service period had no impact on net bookings, segment net revenues, or net cash provided by operating activities.

^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 In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.

^D 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. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.

^E Year-over-year growth on a constant currency basis is calculated by translating current quarter local currency amounts to U.S. dollars based on prior period exchange rates. These amounts are compared to the prior period to derive constant-currency year-over-year performance. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of currency rate fluctuations.

• Total net bookings increased by 43% year-over-year for the fourth quarter of 2022. On a constant currency basis, total net bookings increased 49% year-over-year for the fourth quarter of 2022 as currency rate changes negatively impacted year-over-year growth in the quarter by 6 percentage points.
• Activision segment net revenues grew by 60% year-over-year, Blizzard segment net revenues grew by 89%, and King segment net revenues grew by 6% for the fourth quarter of 2022. On a constant currency year-over-year basis, Activision segment net revenue grew 67%, Blizzard segment net revenue grew 97%, and King segment net revenue grew 11% for the fourth quarter of 2022, as currency rate changes negatively impacted Activision segment net revenue year-over-growth by 7 percentage points, Blizzard segment net revenue year-over-year growth by 8 percentage points, and King segment net revenue year-over-year growth by 5 percentage points.

^F Net cash is defined as cash and cash equivalents ($7.1B as of December 31, 2022) and short-term investments ($5.0B as of December 31, 2022) minus gross debt ($3.7B as of December 31, 2022).

Non-GAAP Financial Measures: As a supplement to our financial measures presented in accordance with U.S. 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 GAAP.

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 currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of currency rate fluctuations.

Contacts

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