Activision ends 2008 on high note, but expects slower games sales this year
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A scene from Guitar Hero, which helped boost Activision Blizzard’s quarterly revenue. Credit: Activision Blizzard.
Activision Blizzard today posted a fourth-quarter loss. But, amped by its Guitar Hero, Call of Duty and World of Warcraft game franchises, its operating profits and revenue of $1.6 billion beat Wall Street’s forecasts.
For the year, the Santa Monica company posted $3 billion in revenue.
Its revenue would have been higher had Activision not deferred revenue from sales of titles that have online gaming features. Activision and rival Electronic Arts in recent years have begun to spread out the revenue they get from these games in order to reflect the cost of maintaining a related online service. Adding that revenue would have boosted Activision’s sales to $3.7 billion for the year. The figure also doesn’t include sales from Activision’s standalone business prior to its July merger with Vivendi Games, which would have added another $1.3 billion in sales for a combined $5 billion.
‘We had a fantastic year,’ Bobby Kotick, chief executive of Activision, said during an interview. ‘And we’re expecting to grow our margins even further this year.’
The Santa Monica game company posted a net loss of $72 million, or 5 cents a share, for the quarter ended Dec. 31, primarily due to the write-offs of last year’s merger with Vivendi Games. Excluding those one-time charges, Activision ...
... had a net profit of $429 million, or 31 cents a share, two cents higher than Wall Street analysts had expected. Because of the Vivendi merger, the combined company does not have comparable sales and profit figures from 2007. The company also shifted its fiscal year. It used to end on March 31, but 2008 was cut short to end Dec. 31.
‘They had a good quarter during a bad economy,’ said Colin Sebastian, an analyst with Lazard Capital Markets. ‘Activision is still far ahead of their competitors in terms of operating margins.’
Activision boasted operating margins of 24% for 2008, excluding charges related to its merger. Electronic Arts, which recently reported wider losses and disappointing sales for the December quarter, had margins of about 5%.
‘The game business overall is growing,’ Sebastian said. ‘But we clearly have a case of the haves and the have-nots. Activision had Guitar Hero, Call of Duty and World of Warcraft. EA invested in casual online games and mobile, which did not do so well.’
Activision, however, warned of lower revenue for 2009, mostly because a strong dollar is expected to dilute the value of its European sales. Activision gets roughly half of its sales outside of the U.S. The company said it was expecting the strong dollar to translate to $400 million in lower revenue for 2009.
It projected sales of $4.7 billion this year. It also projects earnings per share of 61 cents, versus 67 cents expected by Wall Street analysts.
‘The real question is what their guidance means,’ said Michael Pachter, analyst with Wedbush Morgan Securities.’Technically, they say it will be down, but they say the industry is growing. It’s hard to understand how they can say industry growth will be in the mid-single digits but their revenue will decline.’
Investors didn’t like the cautious outlook. Activision shares, which lost 14 cents to close at $9.48, sank 31 cents, or 4%, to $9.17 in after-hours trading following the announcement.
-- Alex Pham