It has been about a month since the last earnings report for Activision Blizzard, Inc (ATVI). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Activision Blizzard, Inc due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Activision Q4 Earnings Up Y/Y on Solid Top-Line Growth
Activision Blizzard’s fourth-quarter 2020 non-GAAP earnings of 76 cents per share increased 22.6% year over year.
Consolidated revenues increased 21.5% year over year to $2.41 billion. Adjusting for revenues from non-reportable segments, net effect from the recognition of deferred revenues and elimination of intersegment revenues, total revenues climbed 11.5% to $2.81 billion.
The Zacks Consensus Estimate for earnings and revenues was pegged at $1.18 per share and $3.05 billion, respectively.
For the quarter ended Dec 31, 2020, overall Monthly Active Users (MAUs) were 397 million compared with 409 million as of Dec 31, 2019.
Activision Blizzard’s net bookings increased 12.7% year over year to $3.05 billion. Net bookings from digital channels were $2.34 billion, up 24.5% year over year.
Notably, in-game net bookings were $1.32 billion, up 22% year over year.
Product sales (35.9% of revenues) were $866 million, up 23.9% year over year. In-game, subscriptions and other revenues (64.1% of revenues) increased 20.2% to $1.55 billion.
Based on distribution channels, Activision Blizzard reported retail channel sales of $234 million, down 24.5% year over year. However, digital online revenues of $1.87 billion were up 30.2% from the year-ago quarter. Moreover, other revenues increased 28.7% year over year to $305 million.
Further, on the basis of platforms, revenues from mobile and ancillary (29.3% of revenues) rose 11.7% year over year to $707 million. Additionally, PC revenues (23.2% of revenues) increased 7.7% year over year to $561 million. Moreover, revenues from console (34.8% of revenues) surged 41.2% year over year to $840 million.
On a geographic basis, revenues from the Americas (51.7% of revenues) soared 33.4% year over year to $1.25 billion. Europe, the Middle East and Africa revenues (37.7% of revenues) were up 27.6% year over year to $910 million. However, revenues from Asia Pacific (10.6% of revenues) decreased 24.3% year over year to $256 million.
Activision (58.9% of revenues) revenues increased 16.2% year over year to $1.66 billion. The division had 128 million MAUs as of Dec 31, 2020 unchanged year over year.
The segment’s top-line growth benefited from strong demand for Call of Duty (COD) franchise that grew by a double-digit percentage year-over-year. COD in-game net bookings on console and PC grew more than 50% year-over-year.
Moreover, the November launch of Call of Duty: Black Ops Cold War helped in attracting players. MAUs grew roughly 70% and time spent more than doubled.
Call of Duty Mobile net bookings grew double digits on a year-over-year basis. Late December, the game was launched in China, where it was an instant hit.
Blizzard (20.6% of revenues) revenues of $579 million decreased 2.7% from the year-ago quarter. Blizzard had 29 million MAUs as of Dec 31, 2020 compared with 32 million as of Dec 31, 2019.
World of Warcraft MAUs grew year over year for the sixth consecutive quarter. Net bookings for World of Warcraft grew sharply year over year, driven by strong sales of the Shadowlands expansion, subscriber growth, and high participation in value added services.
King’s (20.5% of revenues) revenues of $577 million increased 14.7% year over year. MAUs were 240 million as of Dec 31, 2020, compared with 249 million as of Dec 31, 2019.
In-game net bookings increased double-digit percentage year over year in the fourth quarter. In-game spending per player and double-digit year-over-year growth in in-game net bookings reflected continued popularity of the Candy Crush franchise. Candy Crush was once again the top-grossing franchise in the U.S. app stores.
The Farm Heroes and Bubble Witch franchises also grew net bookings year over year.
Product development expense increased 18.7% year over year to $336 million. General & administrative expenses were up 9.7% year over year to $193 million.
However, sales & marketing expenses were $338 million, down 0.3% year over year.
Total costs & expenses on a non-GAAP basis increased 19.4% year over year to $1.67 billion in the reported quarter.
On a non-GAAP basis, operating income was $747 million, up 26.4% year over year.
Balance Sheet & Cash Flow
As of Dec 31, 2020, cash and cash equivalents were $8.65 billion compared with $7.42 billion as of Sep 30, 2020.
Long-term debt as of Dec 31, 2020 was $3.61 billion compared with $3.60 billion as Sep 30, 2020.
Operating cash flow increased 24% year over year to $1.14 billion. Free cash flow was up 27% year over year to $1.12 billion.
On a trailing 12-month basis, free cash flow increased 27% to $2.17 billion.
For first-quarter 2021, Activision Blizzard expects non-GAAP revenues of $2 billion and earnings of 59 cents per share. Net bookings are expected to be $1.75 billion.
For 2021, Activision Blizzard anticipates non-GAAP revenues of $8.23 billion and earnings of $3.34 per share. Net bookings are expected to be $8.45 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Activision Blizzard, Inc has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Activision Blizzard, Inc has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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