There has been much wailing and gnashing of teeth in the videogame industry in recent months. Investors in Activision Blizzard, Inc. (NASDAQ:ATVI) have been waiting to find out whether or not a free game would result in lower profits for the gaming giant. Free-to-play Fortnite: Battle Royale, has taken the gaming world by storm. The game, which pits 100 players against each other in a last-person-standing format, pocketed an estimated $233 million in March alone. While the game is free, players pay for virtual outfits and other micro-transactions.

After attracting 45 million players, many wondered if this phenomenon was siphoning off profits from Activision, among others. Apparently, it isn't that much of an issue yet.

Reaper and Sombra, characters from Blizzard's Overwatch game, firing at an unseen assailant.

Activision produces a record quarter. Image source: Activision.

In a word -- Record!

Metric

Q1 2018

Q1 2017

Year-over-year change

Net revenue

$1.965 billion

$1.726 billion

13.8%

Operating income

$595 million

$493 million

20.6%

Diluted earnings per share

$0.65

$0.57

14%

Data source: Activision Blizzard earnings report.

Activision reported record first-quarter revenue, net bookings, and earnings per share. The company said that was the result of record first-quarter digital, mobile, and in-game revenue and net bookings. It also drove record first-quarter cash flow of $529 million, up 29% year over year.

In particular, revenue from digital sales hit an all-time record of $1.46 billion. Net bookings for the quarter (which is net revenue less deferrals) hit a first-quarter record $1.38 billion, up 15% compared to the prior year quarter. Net bookings from digital channels was also a record, at $1.2 billion, up 12% year over year.

Greater reach

Games across the Activision Blizzard portfolio increased their audience reach, with 374 million monthly active users (MAUs). Its King division had 285 MAUs and the company reported that daily time spent per user hit record levels. The Activision segment reported 51 million MAUs, with Call of Duty increasing its player count year over year. The Blizzard unit, home to World of Warcraft, had 38 million MAUs. The company revealed that the game was outperforming compared to prior expansions at this point in its release, including stronger engagement and in-game purchases.

Activision also provided an update on the Overwatch League. The company said the esports version of its popular game, which launched its inaugural season in January, continues to attract strong viewer numbers and has resulted in increased engagement in terms of hours spent playing and watching. The playoffs for the league are scheduled to kickoff this summer.

Commenting on the quarter, Activision CEO Bobby Kotick said, "As we look ahead, our innovative core gaming pipeline, as well as initiatives like mobile, esports, and advertising, will continue to drive growth for our business."

A digital early peek

It turns out that one of the more interesting developments wasn't related to the results at all. In a bizarre mix up, Dow Jones, a subsidiary of News Corporation, inadvertently published Activision's earnings report before its scheduled release. In addition to reporting the results early, the report contained inaccurate financial information, sending the stock plunging, before trading on the stock was halted. Activision finally cleared up the confusion, forced to release its financial report earlier than scheduled. 

Looking ahead

Activision raised its guidance for the year, saying it expects net revenue of $7.355 billion and adjusted earnings per share of $2.51. Unfortunately analysts' consensus estimates for the year were for adjusted earnings of $2.61 per share on revenue of $7.51 billion. 

For the second quarter, Activision is forecasting adjusted revenue of $1.35 billion and adjusted earnings of $0.31 per share, missing analysts' consensus estimates for the quarter for adjusted revenue of $1.49 billion and adjusted earnings of $0.47 per share.

It's important to note that Activision put together a record quarter, and did so in what is historically a slower quarter. The company may have issued soft guidance due to uncertainty related to Fortnite, but for now at least, there hasn't been a significant effect on the company's results.

Danny Vena owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.