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Activision Blizzard, Inc. (NASDAQ:ATVI) seems to be making all the right moves in the video game business, from its console games to mobile to e-sports. And second-quarter results released after the market closed on Thursday show how quickly the company's growing engagement is turning into revenue and profits.

The numbers

As I said in my preview of Thursday's earnings, I think it's important to compare Activision Blizzard's performance against what management said it was going to do. This is also a better comparison than Q2 2015 results, which don't include the $5.9 billion King Digital acquisition. 

As you can see, Activision Blizzard crushed its own expectations across the board.



Q2 GAAP Guidance


Q2 Non-GAAP Guidance


$1.57 billion

$1.43 billion

$1.61 billion

$1.38 billion






Source: Activision Blizzard second-quarter 2016 earnings release. Non-GAAP figures are using Q1 guidance, not new non-GAAP rules announced in late July. 

King Digital's addition and the launch of Overwatch have helped results, and show the company making all the right moves in its transition from a console-game business to a digital-content leader. And engagement will ensure revenue keeps coming in.

Engagement is through the roof

Outside of financial metrics, the most-important thing for investors to watch in quarterly earnings is the engagement metrics, which were up almost across the board at Activision Blizzard in the second quarter:

  • Blizzard's monthly active users (MAUs) rose 29% sequentially, and 13% year over year, to 33 million users, driven by the launch of Overwatch.
  • Activision's online community grew 11% over last year, to 49 million MAUs, and has four of the top-10 games on consoles.
  • King's MAUs declined in the quarter, but stood at 409 million, including three of the top-15 grossing games in mobile app stores.
  • Major League Gaming, Activision Blizzard's e-sports platform, recently partnered with Facebook, and has seen its reach on the social-media platform grow 700% since December.

None of these metrics alone will drive the company's growth, but together they show how dominant Activision Blizzard is in gaming. For some perspective on how quickly it's been able to shift from consoles to digital downloads, digital in-game GAAP revenues came in at over $900 million in the quarter, led by King. Even without King, digital revenues were up 20% in the quarter. That growth is driven by consumers being engaged on the platform, and being willing to pay for the content they're using.

2016 is even better than expected

The good news doesn't stop with engagement numbers. As a result of strong operations in the last three months, management has increased guidance for the full year. GAAP revenue is expected to be $6.40 billion, up from $6.13 billion after the first quarter, and GAAP EPS guidance was raised $0.18, to $0.87. On a non-GAAP level, management now expects $6.4 billion in revenue and $1.83 per share in earnings.

With digital gaming still in growth mode, and engagement high for Activision Blizzard, this is shaping up to be a banner year for the popular gaming stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.