Not Even a Jedi Can Stop Activision Blizzard

Would you rather be an orc or a jedi? Activision Blizzard (Nasdaq: ATVI  ) is banking on gamers choosing the former.

The game maker put up solid fourth-quarter and full-year results last night. Net non-GAAP revenue in the fourth quarter added up to $2.41 billion, a decline from the $2.55 billion seen a year ago. Meanwhile, the bottom line improved to $0.62 in adjusted earnings per share. Both figures easily bested what the market was expecting. Activision finished off the year with $4.49 billion in adjusted sales and a $0.93 per share adjusted profit.

When it comes to the guidance game, the first-quarter outlook was pretty light, but the full-year forecast looked a little better. Next quarter, Activision only expects earnings per share of $0.03 on $525 million in sales, which is well below the market's expectations. On the other hand, full year earnings are guided to $0.94 per share on $4.5 billion in revenue, falling short of expectations only by a small margin.

The latest iteration in one of its most successful franchises, Call of Duty: Modern Warfare 3, was ranked the No. 1 best-selling game in 2011, even though it was released in November. Activision launched an online service, "Call of Duty Elite," which is its fastest growing, premium, online service. Skylanders Spyro's Adventure is off to a strong start, and Activision believes it has the potential to become its next $1 billion franchise. Later this year, Diablo III will be released, which promises to revitalize that franchise too.

World of Warcraft still reigns with an iron fist in the MMORPG realm, holding top-dog status with 10.2 million subscribers at the end of 2011. That represents a loss of about 100,000 subscribers, which is a significant improvement to the 800,000 night elves, taurens, and dwarves lost last time around.

The smaller losses help address some of the fears that Electronic Arts' (Nasdaq: EA  ) new MMORPG, Star Wars: The Old Republic, is turning some of Activision's players to the dark side. The Old Republic is off to a strong start, but we'll need to see how many of those padawans end up sticking around after they've used up their free trials.

Activision continues to return cash to investors, cranking up its dividend by 9% to $0.18 this quarter. On top of that, the board has authorized a new stock repurchase program that tops out at $1 billion.

Activision's brand strength is just one reason why it's a much better pick than social butterfly Zynga (Nasdaq: ZNGA  ) , whose business model is dubious at best. I'm also going to go ahead and give Activision an outperform CAPScall, since this company plays for keeps.

Gaming is quickly becoming mobile, and is just one aspect of the mobile revolution. Activision now has plenty of games on iOS and Android. There are plenty of opportunities in The Next Trillion Dollar Revolution, but one in particular has amazing prospects. Get access to this free report to find out one company that is set to ride the revolution to riches. It's free.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 13, 2012, at 5:37 PM, TMFBiggles wrote:

    Evan,

    One thing to consider about subscriber numbers: from my understanding, most MMOs (I know WoW does this, but not certain about SW:TOR) count a subscriber as "active" if the subscription has been paid for any part of the quarter being tracked. That includes trial accounts that bought an activation code (which is necessary to trade -- gold farmers might activate a number of new accounts in order to sell their virtual currency as they get banned repeatedly along the way).

    That said, I'm not surprised WoW didn't drop much in the 4th quarter. Blizzard released the final boss patch of the expansion at the end of November, and SW:TOR didn't come out until the end of December, if I recall. WoW's next big subscriber drop might not come until the second quarter, in the lull between beating the final boss and the release of the Kung Fu Panda expansion, which I honestly don't expect to stem the tide by much.

    Most WoW players won't even get tired of the latest content until well into Q1, so I'd look at Q2 as a make-or-break report for the future of the WoW franchise, and quite likely the SW:TOR franchise as well.

    - Alex

  • Report this Comment On February 13, 2012, at 5:55 PM, HipsterBarista wrote:

    Why is nobody taking Diablo III into account? It will be released sometime in Q2, and it will be, without a doubt, the biggest selling game of the year. People have been waiting a decade for this game. If ATVI misses earnings for the quarter and the price of the stock drops, I'm going to jump on this stock so fast it's not even funny. Here's to hoping.

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