Video-game publishing giant Activision Blizzard Inc. (ATVI) said Thursday its second-quarter profit increased by 12% from last year, driven by strong demand for Call of Duty franchise and World of Warcraft as well as lower expenses. Quarterly adjusted earnings came ahead of the analysts' expectations, but revenues failed to meet the consensus. Looking ahead, the company forecast outlook for the third quarter below the Street estimate. The company also reaffirmed its guidance for the calendar year 2010.
The company's shares lost nearly 7% in after-hours, reflecting the investors' disappointment over the revenue figures and weak outlook.
The Santa Monica, California-based company posted net earnings of $219 million or $0.17 per share for the second quarter, up from $195 million or $0.15 per share in the prior year quarter.
Result for the latest quarter included a $165 million or $0.13 per share of net effect from deferral in net revenues and related cost of sales, and a $17 million or $0.01 per share stock-based compensation and amortization of intangible assets.
Excluding items, non-GAAP net income was $72 million or $0.06 per share, compared to $112 million or $0.08 per share in the year-ago quarter. On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $0.05 per share for the second quarter. Analysts' estimates typically exclude special items.
Robert Kotick, CEO of Activision Blizzard, said, "Our quarterly results were fueled by continued strong consumer response to Activision Publishing's Call of Duty franchise and Blizzard Entertainment's World of Warcraft."
However, second quarter net revenues declined 7% to $967 million from $1.04 billion in the same quarter last year.
On non-GAAP basis, net revenues decreased 15% to $683 million from $801 million in the previous year quarter. Twenty-five analysts had a consensus revenue estimate of $719.77 million for the second quarter.
Product sales fell 14% to $643 million, but subscription, licensing and other revenues grew 11% to $324 million over a year ago.
Total costs and expenses for the second quarter eased to $667 million from $820 million in the prior year quarter.
During the quarter, Activision Publishing released four games including Shrek Forever After, Blur, Singularity and Transformers: War for Cybertron. The company also released two Call of Duty map packs including Call of Duty: Modern Warfare 2 Stimulus Package for the Playstation 3 and PC and Call of Duty: Modern Warfare 2 Resurgence Pack for the Xbox 360.
According to The NPD Group, Activision Blizzard had four top-10 U.S. PC games including Activision Publishing's Call of Duty: Modern Warfare 2 and Blizzard Entertainment's World of Warcraft: Wrath of the Lich King, World of Warcraft Battle Chest and Diablo Battle Chest.
Blizzard Entertainment estimates that StarCraft II: Wings of Liberty sold through more than 1 million units in its first 24 hours, making it the best-selling PC game of 2010, and 1.5 million units in its first 48 hours, setting a record for fastest-selling strategy game of all time.
In February, Activision Blizzard said its board had authorized a stock repurchase program under which the company can purchase up to $1 billion of the company's common stock. As of June 30, 2010, Activision Blizzard had purchased $334 million of its common stock, or approximately 31 million shares.
Last month, Activision Blizzard appointed marketing and advertising industry veteran Eric Hirshberg as chief executive officer of Activision Publishing, effective September 7.
In this role, Hirshberg will oversee Activision Publishing's operational management including its studio, product development functions and consumer marketing activities. He will report to Thomas Tippl, chief operating officer of Activision Blizzard.
For the third quarter of calendar year 2010, Activision Blizzard anticipates break even on GAAP earnings per share, and non-GAAP earnings of $0.08 per share.
GAAP net revenues are estimated to be $600 million, and non-GAAP net revenues are expected to be $725 million for the third quarter.
Analysts project earnings of $0.12 per share on revenues of $911.92 million for the third quarter.
Though the release of True Crime: Hong Kong is moved into 2011, Activision Blizzard is reaffirming its calendar year 2010 outlook due to higher expectations for the Call of Duty brand in the fourth quarter.
For the calendar year 2010, Activision Blizzard still expects GAAP earnings of $0.49 per share, and non-GAAP earnings of $0.72 per share. The company also continues to expect GAAP net revenues of $4.2 billion, and non-GAAP net revenues of $4.4 billion. Street expects earnings of $0.75 per share on revenue of $4.55 billion for the calendar year 2010.
The company said it expects to release Blizzard Entertainment's StarCraft II: Wings of Liberty on July 27. The company has also started a closed beta test for World of Warcraft: Cataclysm on June 30.
Among others in the industry, Take-Two Interactive Software Inc. (TTWO) reported that it swung to a second quarter profit, as revenue jumped 54% due to solid performance of its triple-A titles and continued strength of its catalog business. The company also raised its outlook for the current fiscal year.
Activision Blizzard closed Thursday's regular trading session at $11.75, down 6 cents on a volume of 12.90 million shares. In after-hours, the share further lost 79 cents or 6.72%.
The stock has been moving in a range of $9.93 - $13.00 for the past 52 weeks, with an average daily volume of about 12.70 million shares for the past three months.
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