This is a great time to be selling video games, particularly if you happen to own several of the biggest, most profitable franchises in the industry. Activision Blizzard (NASDAQ:ATVI), the world's largest game publisher, posted earnings Tuesday night that set new third-quarter profit and sales records for the company. And Activision achieved that result with the help of three very different titles. Let's take a look.
The single biggest driver behind the record quarter was Destiny, the Bungie-developed sci-fi shooter that launched in early September. Despite lukewarm reviews (it holds a 77 score out of 100 at Metacritic), the game has been a quick success: Destiny has pulled in revenue of $500 million to date and is already profitable. That's saying a lot considering the huge marketing and development budgets that Activision directed to this one title.
Even more important is that Destiny is delivering plenty of gamer engagement. The title now counts more than 9 million registered users, and Activision said the average gamer is logging three hours of play per day. That level of attachment rivals Activision's most successful games, and it suggests Destiny won't have any trouble growing into a billion-dollar franchise. On that score, the first expansion pack will launch next month. Bungie has also already started work on the next full-game Destiny release.
World of Warcraft
World of Warcraft, an online role-playing game, delivered a hefty boost to Activision's results in the third quarter even though the title is plodding into its second decade. Subscription revenue jumped higher by 16% year over year as the WoW subscriber base grew by 600,000 to reach 7.4 million. That's a big reversal from the prior quarter's 800,000-user drop (but WoW is still well below the 2010 peak of 12 million players).
The rebound was thanks to excitement over the coming expansion, Warlords of Draenor, along with a pre-expansion content update and marketing blitz. But if Activision's recent history with the franchise is any guide, Warcraft's user base should log another gain in subscribers in the fourth quarter once the expansion actually launches. This franchise looks set to be a strong contributor to Activision's results at least through next year.
Hearthstone, released in March, is Activision's first big jump into the free-to-play business model. And the title delivered surprisingly strong results in the third quarter. In fact, management said the number of registered users surpassed 20 million to date. Meanwhile, the game's first expansion, called Curse of Naxxramas, helped delivered high engagement and monetization from that growing player base.
That's really just the start for this title, and for Activision's plans for this business model. The company has a full Hearthstone expansion in the works.
In the meantime the game's reach is about to get much longer. After launching on iPad tablets months ago, Hearthstone is set to hit Android tablets before the end of the year, with iOS and Android smartphone versions to come soon after that, which should add tens of millions of gamers to its addressable market.
Beyond that, Activision has two more free-to-play franchises coming out in the next year: Heroes of the Storm and Call of Duty Online.
Foolish look ahead
As strong as Activision's third quarter was, the company's lineup looks more impressive for the holiday quarter. There are the Warcraft and Destiny expansions for gamers and investors to look forward to, along with a new Skylanders chapter that promises to boost revenue.
And, of course, there's Advanced Warfare, which is Activision's first game in the Call of Duty franchise to benefit from a three-year, rather than a two-year, development cycle. While Destiny set records in the third quarter for the launch of a new intellectual property, Advanced Warfare will likely blow right past that title on its way to becoming this year's best-selling game.
Demitrios Kalogeropoulos owns shares of Activision Blizzard, Apple, and Netflix. The Motley Fool recommends Activision Blizzard, Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Activision Blizzard, Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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