Activision Blizzard has announced its quarterly financial results for the first quarter of 2023, which ended on March 31.
If you're wondering, Activision doesn't report its result based on the fiscal year, but on the normal calendar year, which is why the period between January 1 and March 31 is considered the first quarter, while for most companies, that's the fourth quarter of the fiscal year.
As usual, we get a comment from CEO Bobby Kotick, who boasts "exceptionally" good performance with every key intellectual property growing year-on-year and Call of Duty being the key driver of that growth. He also mentions that pre-orders for Diablo IV are strong.
Kotick then comments on the proposed acquisition by Microsoft and the denial by the British CMA, reiterating that Activision will be aggressive in working with Microsoft to have the decision reversed on appeal.
In our 33rd year, Activision Blizzard is performing exceptionally well. Every one of our key intellectual properties continues to grow year-over-year, with Call of Duty once again a key driver of growth. Mobile net bookings grew double digits including another record quarter for King. Pre-sales for Diablo IV are strong. And none of this would be possible without our people, who deliver excellence for our players every single day. We remain confident that our deal with Microsoft benefits competition, consumers, and job creation in markets around the world, especially in the UK. The CMA’s report today does not reflect these realities, and we will work aggressively with Microsoft to reverse it on appeal.
Further detail on the company's reaction to the CMA's decision is found later in the document. This time it's Activision's turn to call it "irrational".
On April 26, 2023, the United Kingdom Competition and Markets Authority ("CMA") announced a decision to block the merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Activision Blizzard considers that the CMA’s decision is disproportionate, irrational and inconsistent with the evidence. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. Activision Blizzard continues to believe that the deal is pro-competitive, will bring Activision Blizzard content to more gamers, and will result in substantial benefits to consumers and developers in the UK and globally. The parties continue to fully engage with other regulators reviewing the transaction to obtain any required regulatory approvals."
Activision's financial results are, as described by Kotick, quite strong, with significant improvement in net revenues year-on-year.
Further operating metrics about all of the company's brands have also been shared, signaling 28% revenue growth year-on-year for Activision, 62% growth for Blizzard, and 8% for the mobile arm King.
Interestingly, Activision mentions that public testing for Diablo IV "saw very high engagement and positive feedback" and reiterates that preorders are strong. We also hear that the company plans "story-driven expansions."
Activision
- Activision segment revenue grew 28% year-over-year in the first quarter. Broad-based growth across Call of Duty drove segment operating income to more than triple the year-ago level.
- Building on the record-setting launch of Call of Duty: Modern Warfare II last October, premium Call of Duty game sales in the first quarter were significantly higher than in the year-ago quarter. Activision’s expanded teams are delivering substantial post-launch content for both the premium game and the free-to-play Warzone 2.0 experience. New content, modes and gameplay enhancements have had a positive impact on engagement, and Activision is planning more compelling live services for the coming months.
- Call of Duty in-game net bookings on console and PC grew strongly year-over-year in the first quarter. Call of Duty Mobile net bookings also grew year-over-year, driven by enhancements to the player experience and live operations.
- Activision’s teams are working hard on the next full annual premium release in the blockbuster series and Call of Duty: Warzone Mobile, both slated for later this year. On June 20, Activision will launch Crash Team Rumble, a team-based brawler featuring characters from the beloved Crash universe, on Xbox and PlayStation.
Blizzard
- Blizzard segment revenue increased 62% year-over-year in the first quarter, with each of Warcraft, Overwatch and Diablo contributing to growth. Segment operating income was broadly stable year-over-year, reflecting higher development and marketing costs, including launch investment ahead of the second quarter release of Diablo IV.
- The Overwatch and World of Warcraft teams delivered substantial in-game content and live operations to excite and sustain their communities following major product launches in the fourth quarter. Following the November release of the Dragonflight expansion for the Modern game, our World of Warcraft team is delivering more content faster than ever before, and subscriber retention in the West is higher than at the equivalent stage of recent Modern expansions. While Overwatch engagement moderated versus the Overwatch 2 launch quarter, hours played were approximately twice the levels seen prior to the release of the free-to-play experience. Season 3, which launched in February, drove strong retention and consistent player investment versus the prior season.
- Diablo Immortal on mobile and PC also contributed to Blizzard’s first quarter net bookings growth, with the game experiencing stable trends across engagement, retention and player investment. Elsewhere on mobile, Warcraft: Arclight Rumble, an action strategy game internally-developed at Blizzard, continues to progress well through regional testing.
- Diablo IV, the next major installment in the genre-defining series, will launch on PC and console on June 6. Public testing of the game in March saw very high engagement and positive feedback, and pre-sales are strong. This ambitious title will serve as the launch for a compelling live service, with regular seasons and story-driven expansions planned to drive engagement for many years to come.
King
- In the quarter that marked its 20th anniversary, King continues to deliver excellent financial performance, reflecting strong execution and deep expertise in optimizing live operations and user acquisition. First quarter segment revenue grew 8% year-over-year, equivalent to low double-digit growth on a constant currency basisE. King’s first quarter segment operating income was little changed year-over-year due to increased investment in marketing, which is expected to contribute to operating income growth in future quarters.
- In-game net bookings increased 11% year-over-year, driven by the Candy Crush franchise. King continues to launch and optimize new seasonal content, features and events to engage its community, and attract lapsed and new players. The March 23 launch of the latest Candy Crush All Stars tournament, where players compete in Candy Crush Saga for a chance to appear in the live finals, drove incremental growth in installs and player investment at the end of the first quarter and into April.
- Candy Crush payer numbers again grew year-over-year, and Candy Crush was the top-grossing game franchise in the U.S. app stores for the 23rd quarter in a row.
- Amid a weak macro environment for digital advertising, King advertising revenue fell due to declines in business with partner networks. King continues to invest in innovative ad product offerings to fuel further growth in its direct business with brand advertisers.
- King is already starting to see benefits from last June’s acquisition of Peltarion, an AI company. Peltarion’s technology is helping King to accelerate the production and testing of live operations and to offer more relevant game content to players, with the acquisition set to deliver a meaningful financial benefit in its first full year.
