Activision Blizzard (NASDAQ:ATVI) just turned in a smash hit of a third quarter.
Revenue came in well above the company's -- and Wall Street analysts' -- projections. Earnings on both a GAAP and non-GAAP basis more than doubled expectations:
Let's take a closer look at the specifics. It was a busy quarter, but it's setting up what should be a much busier fourth quarter, and potentially many more to come.
Something old, something new fueling growth
The much-anticipated Destiny -- which seemed to be a potential disappointment based on early reviews -- has turned into the best-selling new franchise ever launched in the United States. We knew it did $325 million sales to end users in the first five days, but 9.5 million users point toward more than $500 million in end-user sales so far. With both Microsoft and Sony discounting their newest consoles as they fight for market share heading into the holiday season, the first expansion pack coming out in a few weeks, and the core users that are coming in at 3 million per day, playing more than three hours per day on average, it's likely that Destiny sales will be strong in Q4 as well.
Likewise, Activision's newest title, Hearthstone: Heroes of Warcraft -- the company's most successful free-to-play game for the PC and iPad -- reached 20 million registered users in the quarter. The game will launch for Android in December. While the company doesn't give a breakout of revenues for each title, Hearthstone -- which is free to play and brings in revenue only through in-game purchases -- contributed enough to get a mention in the 10-Q as a driver of Activision's sales growth.
Old Activision racehorses Diablo and World of Warcraft were big contributors in the quarter as well. Diablo 3: Ultimate Edition made its debut on consoles in August and was the quarter's No. 4-selling console game, while Diablo 3: Reaper of Souls for the PC, released in March, is the No. 2-selling PC game in 2014.
The biggest surprise to me -- it was announced before earnings, and somehow I missed it -- was that WoW saw its subscriber base grow to 7.4 million at the end of the quarter, largely driven up by a number of in-game freebies, updates, and promotions before the upcoming release of World of Warcraft: Warlords of Draenor in mid-November. While the game has seen a consistent decline in players since the end of 2010 -- which is a big deal, because WoW users pay a monthly fee to play -- a rebound in users more than six weeks in advance of the release of the update indicates there should be strong interest in it.
Skylanders continues to perform well, with SWAP Force sales in both Europe and the U.S. remaining strong, even with a new Skylanders game rolling out for the holidays. How strong is this franchise? Skylanders toys have outsold the No. 1 best-selling action-figure line in Europe and the U.S. so far in 2014. That's pretty powerful, considering that Disney's Infinity 2.0 franchise, which also features handheld toys that are part of the game, includes many of Disney's most popular characters.
Looking ahead to Q4: A new "magnificent seven" driving growth
With the earnings release, management also raised its revenue guidance by $85 million for the full year.
Considering that Activision will launch Call of Duty: Advanced Warfare, World of Warcraft: Warlords of Draenor, and Skylanders Trap Team, during the quarter, as well as the Android version of Hearthstone and the first expansion pack for Destiny, called The Dark Below, it shouldn't be a surprise that the company has been expecting to have a record second half of the year in 2014.
With the new generation of consoles now one year old, the successful debut of Destiny, and Hearthstone for mobile bringing the core of major franchise titles to seven, Activision Blizzard is in great shape going into the fourth quarter and beyond.