Activision Blizzard (ATVI -1.09%) reported a strong first quarter with revenue and earnings blowing past analysts' expectations. Most importantly, the game maker is poised to maintain strong performance through the rest of the year, despite the impact of the COVID-19 outbreak.
During the first-quarter conference call, CEO Bobby Kotick said, "[...] As of now, we're on track to deliver compelling new content, including the World of Warcraft: Shadowlands expansion and the next premium Call of Duty release, both of which are planned for the second half of the year."
Kotick's confirmation that the development pipeline is still on schedule is crucial, especially because of how the outbreak has affected Hollywood, where movies have been delayed or other projects canceled altogether. The digital nature of gaming is insulating video game companies from these types of disruptions, given that employees can work on graphic art and other development work from home. This puts Activision Blizzard in a great position to deliver positive results through the rest of 2020.
Delivering new content at the right time
To say Activision Blizzard's first quarter results were "strong" is understating how good the quarter was for the company. Adjusted revenue (or net bookings, as the company calls it) increased 21% year over year, driven by in-game spending of $956 million in the quarter, representing an increase of 20% over the year-ago quarter.
Call of Duty is one of the best-selling franchises in the industry. The recent releases of Call of Duty Mobile and Call of Duty: Warzone have brought millions of new players to the franchise. The Activision segment had 36 million monthly active users in Sept. 2019, but that figure has exploded to 102 million as of the end of Mar. 2020. That higher installed base of players spending money on these games led to a 64% increase in revenue year over year for the Activision segment in the first quarter.
During the call, Kotick explained what the higher activity levels mean for the franchise in the near term: "Their success demonstrates that free-to-play experiences across mobile, console, and PC not only extend the reach of our franchise but can also lead to strong in-game monetization and sales of premium content."
This could have a big impact on upcoming sales of the new Call of Duty title releasing later this year. Sell-through in the first quarter for Call of Duty: Modern Warfare was the highest ever for a Call of Duty title outside the launch quarter. Management attributed this to the heightened interest in the franchise following the successful releases of Call of Duty Mobile and Warzone.
Blizzard reported good results, too, as World of Warcraft and Overwatch saw higher player engagement during the first quarter. Kotick said, "Blizzard is seeing strong increases in engagement across our franchises as people around the world stay home, adding to business momentum as our game teams execute against the strongest pipeline of content in Blizzard's history."
The release of World of Warcraft (WoW) Classic last year seems to have brought in old and new players alike. COO Daniel Alegre said, "The community continues to engage deeply in Classic, a recreation of our original WoW from 15 years ago, which has delivered substantial content drops in recent months and has much more to come later in the year."
Alegre added that the engagement in the classic version had increased the game's "reach and engagement" for the modern WoW. Most importantly, he said, "[...] This increased activity drove accelerating pre-sales of Shadowlands, the next expansion from modern WoW, which is slated for the second half of the year."
Blizzard releases a major new expansion for the base game every few years. The last expansion, Battle for Azeroth, pushed revenue for the Blizzard segment up 20% year over year in the third quarter of 2018.
A busy year for Activision Blizzard
Kotick's statement about the upcoming release schedule suggests that big releases beyond 2020, such as Overwatch 2 and Diablo 4, are still on schedule with their development roadmap.
Activision Blizzard expects to start regional testing for Diablo Immortal, a mobile version of the PC franchise, in the second half of this year. In addition to the new Call of Duty title and WoW expansion, management said two titles are releasing from its extensive library of intellectual property, which could be remastered older titles for the current console generation.
Overall, management's conservative expectations call for adjusted revenue and earnings to increase about 5% and 13%, respectively, this year.