Activision 2Q2017 Earnings Report

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Activision (NYSE: ATVI) Earning Update

Results

Revenue was reported at 1.63 billion up 3.9% YoY and beat the expected guidance of 1.425 billion for the quarter. The EPS was reported at 0.55 up 22.2% YoY and beat the expected guidance of 0.38 by 0.17. Net income was reported at 243 million, up 60.9% YoY. Sales were up 11% and digital revenue improved to 80% from 69%. The success of this quarter has improved the operating margin to 39% of sales. So what happened with Activision this quarter that caused them to do this well without any major releases?

Digital revenue made up a majority part of the revenue at 80%. They include the add-ons that can be purchased in games like the loot boxes in Overwatch and card packs in Hearthstone, to name a few. Blizzard Entertainment was able to add 5 million active users which brings the total now to 46 million. Blizzard accounted for 566 million in revenue. King Digital accounted for 480 million in revenue. However, King active users continue to fall to 314 million from 342 million of last quarter. Even though the users have dropped, King has had 2 apps in the top 10 grossing app for 15 straight quarters. Activision accounted for 316 million in revenue. It was the smallest of the three due to the fact it did not have any major releases.

Plans

ATVI raised the full year guidance for the second straight quarter. They now expect 6.4 billion in revenue up from 6.1 billion from first quarter raise. Non-GAAP EPS is now 1.94 instead of 1.80 from first quarter. ATVI is encouraged by the pre-order numbers of Destiny 2 and Call of Duty: WWII that are set to be released later this year. King also has a few games in the pipeline that are set to be launch later this year. Management also announced that it has entered into media rights partnership for e-sports and in game contents for some of their titles. It is adding video advertising to King mobile gamers which will unlock a new revenue source. Furthermore, ATVI has sold the first seven teams for Overwatch league, each spot were said to have cost around 20 million. They were able to keep streaming and media content right for the league, which could end up being a huge revenue source with the growing industry of e-sports.

Disclaimer: I have a long position in this. I believe that ATVI has great growth potential. If the new releases are successful, it could be another record year for ATVI. Please do your own research before making any decisions. Don’t make decisions based solely on the information provided here.

Please feel free to read my due diligence as well as my update.