Activision's 'Focus' Drives Revenue Past Estimates

Activision Blizzard posted a $72 million loss in its fourth quarter -- but taking adjustments into account, the company actually brought in $2.3 billion in net revenue, and by some measures its strongest income results yet.
Activision Blizzard posted a $72 million loss in its fourth quarter -- but taking adjustments into account, the company actually brought in $2.3 billion in net revenue, outdoing analyst estimates. Strong sales of Guitar Hero and Call of Duty helped Activision Blizzard continue resisting industry-wide erosion in its share value over the recent months, and today the publisher reports what it says is the strongest operating income in its history at $644 million for the quarter. These figures, though, are actually higher than the $1.5 billion net revenue and loss gap that appear on Activision Blizzard's balance sheet, thanks to deferred revenue adjustments. With all those deferrals included, Activision reports $5 billion in income for the calendar year as a whole. On the company's results call, Activision CEO Bobby Kotick said the company owes its strong quarter to a "focus on a select number of proven franchises and genres where we have proven development expertise." "We look for ways to broaden the footprints of our franchises, and where appropriate, we develop innovative business models like subscription-based online gaming." Activision gained a big part of its subscription-based online business through the Blizzard merger earlier in 2008, and Kotick says the merger saved the company $150 million in costs -- incidentally the same amount of money Electronic Arts recently said it would invest to build out its online business. Analysts have suggested Activision has a major competitive advantage in that the expense of creating an online game business was ameliorated greatly by the merger. Kotick said the company's "lean, efficient and focused" operational methods have minimized risk and allowed more certain hits, and offered as evidence the fact that Activision Blizzard has had a number one selling title on every major platform this year, and both the number one and number two sellers in the December quarter. He also claimed that Activision is the first publisher to surpass $1 billion in sales from a single game -- Guitar Hero III. As for World of Warcraft, it's now up to 11.5 million subsribers, he adds -- a 1.8 million increase year over year. Kotick said the company will build on its success thanks to three advantages: "Our proven strategy of focusing on high-quality franchises evident in our product lineup -- the best in our company's history," he began. Second, he noted "our industry-leading operational capabilities which have allowed us to... avoid the distraction of rightsizing and restructuring." Third, Kotick added, "Our strong financial position gives us the ability to use capital as a competitive advantage." The company's presentation was still cautious on the state of the economy and carried a message of risk avoidance. "We recognize our titles will need to perform well," said Kotick. "We remain mindful of the many variables... [there is] still significant macroeconomic risk, consumer attraction risk and pricing risk." Despite the pricing risk, publishing label head Mike Griffith said that the average selling price of games in December was higher than ever, thanks to the higher prices of peripheral-bundled music games. "We do believe that our proven ability to focus on select franchises gives us unparalleled competitive advantage this year," added Kotick. "We're confident... in launching in 2009 more products than ever before." However, the company's shares slouched at market close as the company forecast $4.7 billion in revenue for 2009 -- a lower outlook than analysts had expected.

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