Blizzard powers Activision Blizzard results

Between the launch of World of Warcraft: Legion and the ongoing success of Hearthstone and Overwatch, Blizzard posted a windfall quarter, single-handedly powering Activision Blizzard to revenue growth as the rest of the business saw sales shrinking. The publisher today posted its financial results for the quarter ended September 30, showing sales and profits up overall, even as parts of the business stumbled.

For the quarter, overall revenues were up 58% to $1.57 billion, thanks partly to Blizzard and partly to the inclusion of King, which Activision Blizzard acquired after the previous year's third quarter ended. Looking at the publisher's breakdown of revenues, the Activision side of it contributed $377 million in revenues, down 36% year-over-year, while Blizzard posted $727 million, up 97 percent year-over-year. The King division was listed as having $459 million in revenues, and while King was a separate company last year, it reported bookings of $502 million on its own for the same period.

Blizzard's bump was due in part to the launch of World of Warcraft: Legion, which sold through 3.3 million copies in its first day on sale, matching the best performance of any previous expansion to the game. It also spiked the World of Warcraft monthly active user base up 30% from the second quarter.

The only segment of Activision Blizzard's to see revenues decline year-over-year was the "Other" group, which includes the company's distribution business as well as Major League Gaming, which it acquired earlier this year. Despite the addition of MLG, the segment saw revenues dip 16% to $67 million.

Regardless of growing or shrinking sales, Activision Blizzard's various businesses still (mostly) turned a profit. As with sales, Blizzard was the big winner, posting operating profits up 151% to $321 million, while Activision posted a $123 million operating profit (up 1%) and King put up $138 million. (Last year, King reported adjusted earnings before interest, tax, depreciation and amortization of $180 million.) The lone exception to the trend was the Other segment, which turned last year's $1 million operating profit into a $7 million operating loss. Company-wide, Activision Blizzard posted earnings per share of $0.26, up from $0.17 the year before. On a non-GAAP basis, it posted earnings per share of $0.49 compared to the year-ago quarter's $0.20.

The acquisition of King and the success of Blizzard are also underscoring a fundamental shift in Activision Blizzard's business. For the third quarter, the company made 86% of its revenue from digital online channels, with just 10% coming from retail. (The remaining 4% came from the Other segment.) It's not just that revenues from retail channels are decreasing relative to the overall business; the $157 million Activision brought in through physical channels during the quarter was down 44% from the $281 million it brought in for the same period last year.

Activision Blizzard CEO Bobby Kotick namechecked every segment of the company as contributing to the company's rosy results and future prospects.

"We continue to see enthusiasm from our global audiences for our key franchises including Call of Duty, Destiny, Candy Crush and World of Warcraft, plus our newest franchise - Overwatch, which after only about four months had already reached over 20 million players and has incredible player engagement," Kotick said. "Looking forward, we expect continued momentum from all of our growth strategies, especially our eSports initiatives and our integration of in-game advertising."

Update: On the earnings call that accompanied the fiscal report today, Activision chief Bobby Kotick talked about the huge opportunity that he sees in spectating and eSports, and how professional gamers will one day soon be recognized in the same way as traditional athletes. For the immediate future, however, the biggest opportunity for the publishing behemoth is in-game content, noted CFO Dennis Durkin when asked by an analyst in the Q&A portion of the call.

"As you've seen in our numbers, we've seen incredible growth in this area in the past several years, but we really think we're still only in the early stages here, and if we can do it right and not only drive additional player investment it can also drive additional engagement as you deliver content to fans more frequently and consistently, as we saw in Q3. So this is really an enormous opportunity just based on the current engagement that we have across our portfolio," he commented.

Indeed, all the leaders of the respective Activision divisions backed up Durkin's sentiment. Blizzard boss Mike Morhaime talked about how it's a big priority to continue providing new content to Legion players and how important it is to keep Overwatch players engaged. He said Overwatch is on track to produce record launch-year revenues for a Blizzard title. Likewise, Activision Publishing head Eric Hirshberg reminded everyone that they now think of Call of Duty as a "year-round business" and so while initial sales for the upcoming Infinite Warfare may be modeled to be slightly lower, the opportunity in front of Activision to continue engaging its Call of Duty players with more content remains.

Overall, between in-game content, Blizzard's successes, eSports and ramped up advertising initiatives through King's mobile titles, Durkin asserted that "we have more opportunity in front of us than we've ever had before.”

Additional reporting by James Brightman