Thursday, August 5, 2010

Preliminary Q2 Numbers Only for ATVI

I am going to need a few days to go over reports that ATVI will release to the public. I'm much interested in the segmented income statements and balance sheets (separate financial reports from Activision & Blizzard respectively). I was able to listen in on the investor conference call where ATVI discussed their Q2 financial performance and talked about things to come in Q3 and Q4 of 2010.

Expected Net Revenue $925M
Expected EPS (Earnings per share) $0.11

Actual Net Revenue $967M
Actual EPS $0.17

Expected Net Revenue $700M
Expected EPS $0.04

Actual Net Revenue $683M
Actual EPS $0.06

As we see, the actual EPS on a GAAP & Non-GAAP basis outpaced expectations for Q2. Blizzard Entertainment again made significant contributions to overall net revenue thanks to the continued success of World of Warcraft franchise.

Where they announced a specific release date for Activision's Call of Duty: Black Ops for November 9, Mike Morhaime (Blizzard CEO) stated:

"... I'd like to point to the release of Cataclysm, being our best expansion yet for World of Warcraft. Although an exact release date has not yet been announced, we're on track to launch the expansion by the end of the year. As with all Blizzard games, though, we won't release until it's ready."

I know they say they won't release it until it's ready, but after listening to them it's quite clear that they are 100% intent on releasing it in Q4. They want to release all their Activision titles before Thanksgiving, so it's not much of a stretch to assume that Cataslysm's release date will fall sometime around Thanksgiving as well, either very closely before it or immediately after in order to grab the seasonal market.

As is the trend with a lot of gaming companies, ATVI seems focused on providing BIGGER AND BETTER games, but fewer of them; focusing on quality and not quantity.

Interestingly, StarCraft II sold over 1.5M copies in its first 48 hours, that's more than double than what WoW sold on its inital box release. Yet dispite the apparent massive SC II sales, non-gaap EPS is only expected to be $0.08 in Q3, an issue a few investors questioned during the Q&A session. It's anticipated, and given the development of both Cataclysm and Blizzard's new yet unnamed MMO, that there will be significant development costs in the third quarter of 2010 that will lead to, if you can believe it, lower GAAP net revenues in Q3 than in Q2, but slightly higher net revenues per non-gaap reporting.

Looking ahead there are still plans to invest record amounts of capital into new and innovative franchises, such as Blizzard's new MMO, of which we have no details. ATVI's strong cash position and low debt services are an important stepping stone to free up the capital necessary in making such long-term investments. Despite the risks inherent in the gaming industry, both subscription and valued transaction revenues remain strong in US, Europe and SE Asia.

Blizzard is one approval away from being able to launch WotLK in China...which gives me yet another reason why I'm glad I'm not Chinese. No Worgen for you, Yao Ming.

Overall it was an informative conference call, and I plan on going through what other financials are available to me over the next few days in hopes to make many outlandish and false claims of the direction and motives of Blizzard Entertainment as they relate to World of Warcraft. Just be glad you don't have to pour through pages of financials, they can get rather boring. But it's not the numbers that excite, it's what we can infer from them, namely how the financial situation of a company impacts game design and delivery.

You'll see my full report next Monday, until then, you're always welcome here and thanks for stopping by.

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