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Activision Blizzard - sales in line with expectations

Fourth quarter net revenue fell 10.4% to $2.2bn, which was slightly better than expected.

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Fourth quarter net revenue fell 10.4% to $2.2bn, which was slightly better than expected. Bookings were below expectations, reflecting weaker performance from Activision Blizzard, which offset record performance elsewhere.

Lower costs meant operating profit rose 14.8% to $682m.

The group reiterated that Microsoft's bid to buy Activision Blizzard for $95 per share, has been approved by Activision's board. If the deal gets regulatory and shareholder approval it will complete at the end of Microsoft's 2023 financial year.

A dividend of $0.47 per share.

The shares were unmoved following the announcement.

View the latest Activision share price and how to deal

Our View

The market's reaction to Microsoft's bid was unsurprisingly excitable. Should the deal go ahead, Activision's shareholders will be rewarded with a substantial premium to the share price before the deal was announced.

We can understand Microsoft's efforts. The group's swooping in to grab some of the world's most valuable gaming intellectual property, at a time when Activision's shares have suffered after allegations of unsavoury management behaviour and corporate culture. The gaming industry is enjoying huge popularity, and this is only expected to grow. Some will be sad to see Activision fall into new hands as it gifts its potential for long-term growth to someone else.

Until a deal is approved and there's a signature on the dotted line, it's important to remember the bigger picture.

The pandemic steam-rolled Activision Blizzard onto a path of impressive growth. Stay at home orders boosted demand for the Call of Duty maker's content. We suspect the market's a bit disappointed by growth forecasts from here, but that's a function of the formidable results this time last year.

Crucially, user numbers are still holding their own.

That's testament to the brand's incredible pulling power. On top of the infamously popular Call of Duty franchise, World of Warcraft continues to top lists of the best games in its genre 17 years after it was released, and Candy Crush remains among the most lucrative mobile games in the US. Activision Blizzard's intellectual property is formidable.

Legions of devoted fans spend big on expansions and in-game items - so unlike the days when gamers bought a single disk or cartridge upfront, established hits can keep on generating cash. The majority of sales are digital, which is a high-margin source of revenue.

Unlike some rivals, Activision Blizzard owns its most powerful brands outright, so it doesn't have to share success with licence holders. That's allowed the group to rapidly expand its brands into new formats and underpins planned esports expansions.

Esports see professional gamers compete live, with fans watching on TV, online or in stadiums. Audiences have been growing and are now over 400 million globally. Activision's got experience in the space with the Overwatch League in its fourth season, with 2020's grand finals attracting 1.6m viewers. In the past, 70% of viewers have fallen in the 18-34 year old age bracket.

Millennials are a difficult group for marketing teams to reach, since they consume less traditional media than older generations. That makes esports attractive to advertisers, and advertising revenue can be high margin. We think Call of Duty has the potential to dwarf Overwatch in advertising terms, but it's still early days. Meanwhile news that the King mobile gaming business has managed to grow advertising revenues even as other digital advertisers struggle is encouraging.

Gaming is going through significant change though, with consoles giving way to cloud-based gaming and the marketplace getting increasingly crowded. It's possible that the next generation of games consoles will be the last, and change is always more difficult for incumbents. However, a premium catalogue of games comes with a premium price tag.

Activision Blizzard key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Fourth quarter results

Net bookings on console and PC declined in the Activision business, largely because of lower premium sales for Call of Duty: Vanguard. There was stronger growth in Call of Duty Mobile net bookings, reflecting demand in China.

Blizzard saw its strongest ever engagement and net bookings outside of a Modern expansion year for ten years in World of Warcraft. Hearthstone new content helped net bookings grow. ''Substantial'' new content is expected in 2022.

There was 20% growth in Candy Crush in-game net bookings, which helped King net bookings rise 14% year-on-year. Hours played across the King portfolio also rose, with a good customer response from new content. Advertising revenue reached a record high, rising 60%. The group said: ''Having passed the $1 billion annual operating income milestone in 2021, the King business is entering 2022 with strong momentum''.

Activision Blizzard finished the quarter with net cash of around $7.0bn.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 4th February 2022