Even a hit from Call of Duty: Black Ops 3 didn't drive growth for Activision Blizzard. Image: Activision Blizzard

Activision Blizzard(ATVI) released fourth quarter 2015 earnings after the market close on Thursday, and it was a mixed bag for investors. Call of Duty: Black Ops 3 was a huge hit with gamers, driving better-than-expected GAAP results. However, digital revenue growth underwhelmed, and Skylanders and Guitar Hero Live failed to inspire the market.

That's the broad stroke of what's going on, but let's dive into the numbers.

The fourth quarter at Activision Blizzard, by the numbers


Q4 2014 Actuals 

Q4 2015 Actuals 

YoY Change

ATVI Guidance

Revenue -- GAAP

$1,575 million

$1,353 million


$1,218 million






Revenue -- non-GAAP

$2,213 million

$2,118 million


$2,148 million

EPS -- non-GAAP





Source: Company earnings release

I included Activision Blizzard's own guidance for the quarter in the far right column as it puts the company's performance into perspective. Video game sales can be lumpy year to year and quarter to quarter, so it's important to gauge the results based on what management was thinking and the prior year period. 

You'll notice that GAAP revenue and earnings per share were ahead of guidance, and that's in large part due to the incredible success of Call of Duty: Black Ops 3. Most of the sales from that game were recorded in the quarter on a GAAP basis, leading to better-than-expected earnings.

What didn't meet expectations was non-GAAP revenue, and that's largely due to disappointing digital sales growth. In the fourth quarter, digital revenue grew 14% -- 19% on a constant foreign-exchange basis. That's below 68% growth for the full year, so digital revenue growth is slowing overall.

In general, management said that they were engaging hardcore gamers very effectively and monetizing content with those players, but they have been less effective with casual users.

King Digital is coming soon
One major investment that will address the casual gamer market is the acquisition of King Digital (KING.DL). The maker of Candy Crush is expected to immediately bring Activision Blizzard's total monthly active user base to more than 500 million people, with the deal closing later this month. King can also bring expertise that can help Activision Blizzard increase digital revenue going forward.

Guidance for 2016
Management also released 2016 guidance. The King Digital acquisition will incur some additional costs, making 2016 GAAP guidance look weaker than you might expect -- management expects 2016 revenue to be $6.1 billion, with earnings per share of $0.45.

Non-GAAP earnings may better tell investors how the company is doing, and that's where revenue is expected to be $6.25 billion, with earnings per share of $1.75. This includes about $0.40 from the acquisition and also the lack of a Destiny title during the year.

The ups and downs of gaming continue
Performance with the hardcore gamer market continues to be strong for Activision Blizzard. As the company's foundation, that's encouraging for investors, but there are definitely some growing pains as it adjusts to the changing demands of casual gamers. That can be seen in the tepid response to Skylanders and Guitar Hero Live.

Long-term, investors will want to watch the evolution of Activision Blizzard as it incorporates King Digital into the business. This should help grow digital revenue and increase engagement from casual gamers on mobile devices. If it can improve in these areas, the company has a bright future ahead.