Activision Blizzard (NASDAQ:ATVI) closed out its fiscal 2017 in dramatic fashion last week when it trounced Wall Street's earnings expectations. Following the report, CEO Bobby Kotick held a conference call during which he and his management team explained why they see that record profit haul as just a small step on a long runway of growth ahead as the developer benefits from long-term trends like digital game delivery and esports broadcasting.
Below are a few highlights from that chat.
1. Casual game growth
King returned to growth with the Candy Crush franchise stronger than ever. -- Kotick
The King Digital side of the business has been logging painful losses in its casual gamer base for more than a year, but the business recently stabilized. The audience ticked down to 290 million users in the fourth quarter from 293 million, compared to far greater declines in each of the last four quarters.
King managed a few other important wins, including a new gamer engagement record of 37 minutes per day. Management said the Candy Crush franchise dominated app sales charts, and powered a return to sales growth for the segment over the entire year.
2. Call of Duty isn't showing its age
The most successful video game franchise over the last 20 years continues to be healthy and vibrant. -- COO Coddy Johnson
Call of Duty: World War II was the top grossing game around the world for the full year, marking the eighth time in the last nine years that the franchise has topped the sales charts. Meanwhile, digital sales are making each new release more valuable than its predecessor.
That's because Activision is keeping fans engaged with periodic content releases so that the useful life of each title extends well past the launch quarter. The increasing popularity of full-game digital purchases is boosting profitability for this franchise and for Activision's other major titles. Management sees plenty of room for both positive trends to continue into future years.
3. Gamers value virtual goods
In-game services, features, and content continue to engage our fans and help drive our results, delivering a Q4 record of over $1 billion of in-game net bookings and an annual record of over $4 billion. -- Johnson
In-game purchases represent a huge profit avenue for video game publishers -- but one that comes with significant risks. Rival Electronic Arts, for example, missed its sales target for Star Wars: Battlefront II after gamers rejected its approach to microtransactions.
Activision's results showed that gamers, in most cases, are willing to pay up for these digital products. Spending on virtual goods and services passed spending on downloadable content in both the Call of Duty and Destiny franchises last year, in fact, and executives expect that to happen again in 2018.
We believe in the growth potential of each new opportunity we are pursuing whether in-game advertising, consumer products, cinematic productions, or e-sports. All of these support our communities and help to drive engagement with our franchises. -- Kotick
Activision ended up blowing past its initial 2017 sales guidance by over $1 billion, and it could be taking a similarly conservative approach to this year's forecast. For 2018, Kotick and his team see revenue rising 5% to $7.35 billion, with in-game digital spending leading the way.
Major content updates in the Destiny and World of Warcraft franchises are on the way over the next few months, but investors won't have a precise handle on full-year results until the second half of 2018. That's when Activision unleashes another Call of Duty title and makes important strides in two of its newer, but most promising, revenue streams. Its esports leagues should reach profitability around that time, just as the company rolls out its in-game advertising platform.
Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.