Activision Blizzard Announces Agreement to Acquire King Digital Entertainment & Better-than-Expected Q3 2015 Financial Results

Company Increases CY 2015 Revenues and EPS Outlook

Company Delivered Record Quarterly Digital Revenues, Generating $697 Million in Non-GAAP Digital Revenues, Growing 38% Year-Over-Year

Announces Agreement to Acquire King Digital Entertainment for $5.9 Billion, Accretive to Estimated 2016 Non-GAAP EPS by ~30%¹

SANTA MONICA, Calif.–(BUSINESS WIRE)– Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2015 and an agreement to acquire King Digital Entertainment for $5.9 billion in equity value ($5.0 billion in enterprise value). The addition of King’s highly-complementary business further positionsActivision Blizzard for growth across platforms, audiences, genres, and business models.

As a result of this announcement, Activision Blizzard will host a conference call to discuss both the transaction and earnings. The call will be broadcast over the Internet at 5 a.m. Pacific Time (8:00 a.m. Eastern Time) before market opens on Tuesday, November 3, 2015.

*Prior outlook was provided by the company on August 4, 2015 in its earnings release.

For the quarter ended September 30, 2015, Activision Blizzard’s GAAP net revenues were $990 million, as compared with $753 million for the third quarter of 2014. On a non-GAAP basis, the company’s net revenues were $1.04 billion, as compared with $1.17 billion for the third quarter of 2014. For the third quarter, GAAP net revenues from digital channels were a record $629 million. On a non-GAAP basis, net revenues from digital channels were a record $697 million and represented a Q3 record 67% of the company’s total revenues, growing 38% year-over-year.

For the quarter ended September 30, 2015, Activision Blizzard’s GAAP earnings per diluted share were $0.17, as compared with a loss of $0.03 for the third quarter of 2014. On a non-GAAP basis, the company’s earnings per diluted share were $0.21, as compared with $0.23 for the third quarter of 2014.

At constant FX^A, non-GAAP revenues were down 4% and EPS was up 13% for the quarter versus prior year. Year-to-date, non-GAAP revenues and EPS were up 5% and 35%, respectively, year-over-year, given strong engagement and recurring digital trends on our year-round monetizing franchises.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “We continue to benefit from our focus on creating the world’s best interactive entertainment. Our incredibly talented employees around the world once again delivered great content and strong financial results. Mobile gaming is the largest and fastest-growing opportunity for interactive entertainment and we will have one of the world’s most successful mobile game companies and its talented teams providing great content to new customers, in new geographies throughout the world. King has a truly fantastic management team and over 1,600 incredibly talented employees and we are excited to welcome them into the Activision Blizzard family.”

Selected Business Highlights:

• Activision Publishing had its highest ever third quarter non-GAAP operating income, driven by strong engagement and digital revenue, with Q3 monthly active users (MAUs)^Bup 17% year-over-year, and the largest Q3 and year-to-date digital revenues in its history. Activision Publishing continues to have 3 of the top 5 games on next-generation consoles life-to-date.²
• Activision Publishing’s Call of Duty^® franchise year-to-date non-GAAP revenues increased by a double-digit percentage year-over-year due to strong catalog sales of Call of Duty: Black Ops, Call of Duty: Black Ops II, and Call of Duty: Advanced Warfare, both for full game and Supply Drops. Call of Duty: Advanced Warfare remains the No. 1 game on next-generation consoles life-to-date, as it has been since its launch a year ago.²
• On September 15, 2015, Activision Publishing and Bungie released The Taken King, the largest update to the Destiny universe yet, which was enthusiastically received by fans and critics alike. Day-one downloads broke PlayStation records, day-one engagement saw the highest number of active players in Destiny‘s history, daily player engagement is now well above 3 hours per day and the Destiny community has climbed to over 25 million registered players. Since its launch, Destiny has become the most watched console game on Twitch.
• On September 20, 2015, Activision Publishing released Skylanders^® SuperChargers, the next installment in the franchise with all new vehicles, action figures and exclusive Nintendo characters. Even with increased competition, SuperChargers is one of Skylanders’ highest-rated entries to date and has strong engagement, with more toys per player than last year.
• Blizzard Entertainment’s third quarter MAUs^B were up 50% year-over-year, reflecting strong engagement with the online player community.
• World of Warcraft^® subscriptions remained relatively stable, ending the quarter at 5.5 million subscribers^C. Players are excited about the upcoming expansion, Legion^™, which will feature a new class, customizable Artifact weapons, class order halls, and much more. World of Warcraft remains the No. 1 subscription‐based MMORPG in the world.
• On August 24, 2015, Blizzard Entertainment launched The Grand Tournament™, the second expansion for Hearthstone^®: Heroes of Warcraft^™, with over 130 new cards. As a result of this new content, continued strength on mobile, and continued strength across geographies, key engagement metrics grew 77% year-over-year and set a new quarterly revenue record for the franchise.
• Blizzard Entertainment brought new players into Heroes of the Storm^™ with the release of The Eternal Conflict, a series of content and hero additions based on the Diablo^®universe. Blizzard also held the Heroes of the Storm regional championships as part of its Road to BlizzCon^® esports series, including the Americas Championship in Las Vegas and the Europe Championship in Prague.
• Blizzard Entertainment’s Diablo III continued to bring in new players in Q3, and in China, the game passed the 2-million-unit milestone.
• Blizzard Entertainment began closed beta testing for Overwatch™ on October 27, 2015, with over 7 million players signed-up to participate, not including China.

Company Outlook:

• On August 6, 2015, Blizzard Entertainment revealed Legion, the sixth expansion to World of Warcraft, including the deadly new Demon Hunter hero class and Artifacts, customizable legendary weapons that transform and grow in power as players battle.
• On August 18, 2015, Activision Publishing announced Skylanders Battlecast, bringing cards to life in a free-to-play mobile card battle game. Players will be able to purchase physical card packs at retail stores or digital card packs in-game. The title is expected to launch in 2016.
• On October 20, 2015, Activision Publishing brought back the pop culture phenomenon that previously reached over 40 million players in North America and Europe with the launch of Guitar Hero^® Live. Reception from players and critics alike has been very positive. The game is designed to be a living, breathing platform to keep players engaged, and so far average time per player is nearly two hours a day.
• On October 22, 2015, Activision Blizzard announced a new division that will build on the Company’s competitive gaming leadership by creating all-new ways to deliver the best-in-class fan experience across games, platforms and geographies, furthering the development of its world-leading esports ecosystem. Former CEO of ESPN and the NFL Network Steve Bornstein serves as the division’s Chairman and Mike Sepso, who was most recently a co-founder and president of Major League Gaming (MLG), serves as its Senior Vice President.
• On November 6, 2015, Activision Publishing expects to release the highly anticipated Call of Duty: Black Ops III from its award-winning studio, Treyarch. Momentum ahead of launch has been strong and engagement for Call of Duty: Black Ops II grew quarter-over-quarter again to nearly 12 million MAUs^B, an unprecedented level for a game that is three years old and only available on old-generation consoles.
• On November 6, 2015, Activision Blizzard will host Investor Day. Presentations by senior management will be webcast live beginning at 8:30 AM PT on the events and presentations section of the Company’s investor relations website at http://investor.activisionblizzard.com/events.cfm. A replay of the event will also be available.
• Blizzard Entertainment’s ninth BlizzCon will be returning to the Anaheim Convention Center on Friday, November 6, and Saturday, November 7. One of the biggest attractions at BlizzCon will be the culmination of this year’s Road to BlizzCon esports tournaments, with the global champions for World of Warcraft, StarCraft II, Hearthstone, and Heroes of the Storm being crowned. For the latest announcements and information, please visit www.blizzcon.com.
• On November 10, 2015, Blizzard Entertainment expects to launch StarCraft II: Legacy of the Void™, the third installment of the company’s real-time strategy sequel. Pre-purchases have outpaced Heart of the Swarm^®, the previous installment. Legacy of the Void will be a standalone product that won’t require any prior releases, so it will be easier than ever for new players to get into the game and experience all of the latest content. Players are already enjoying the prologue content.
• Given the weakening of foreign currencies versus the U.S. dollar, the company’s 2015 international revenues and earnings are translated at lower rates than in 2014. This also impacts the company’s 2015 outlook as compared to 2014 actual results because approximately 50% of the company’s revenues, and a higher percentage of profits, are generated outside the U.S. while a much higher percentage of the company’s costs are incurred in the U.S. See comparison table, below.

You can read the full detailed report here.

Related: Former CEO of ESPN and MLG Co-Founder to Lead Activision Blizzard’s New Division Devoted to Esports

Source: Press Release

Galit Gordon

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I'm a published author and proud US Army veteran who happens to be a gamer, so I decided to combine the two and love every minute of it! Feel free to contact me with any questions or comments and I'll be sure to get back to you.

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