Call of Duty publisher Activision Blizzard blows past earnings and revenue estimates

Call of Duty publisher Activision Blizzard reported earnings today that beat expectations for its first fiscal quarter that ended March 31.

The Santa Monica, Calif.-based company said non-GAAP net income was 19 cents a share, up from 17 cents a share a year ago. Revenues were $772 million, compared with $804 million a year ago. Analysts had expected a consensus of 10 cents a share and revenues of $689 million.

The publisher’s business is built on blockbuster games, including Call of Duty, Skylanders, and the upcoming Destiny from the Activision side. Meanwhile, Blizzard generates a large share of its revenues from World of Warcraft. The company said that the massively multiplayer online role-playing game lost 200,000 subscribers, falling to 7.6 million. But Blizzard’s revenue made all the difference.

Much of current sales are coming from last year’s Call of Duty: Ghosts, past Skylanders games and toys, and World of Warcraft. For the current second quarter, analysts are expecting $675 million and earnings per share of 9 cents.

Activision Blizzard raised its outlook for the coming year. It now expects to have revenues of $4.675 billion, compared to its previous estimate of $4.6 billion. But it said profits will be slightly smaller at $1.26 a share, compared to the previous estimate of $1.27. Activision’s stock price is up 1.5 percent in after-hours trading.

In a statement, Activision Blizzard chief executive Bobby Kotick was appropriately gleeful. He said results were driven by record digital sales for Blizzard’s titles, including Diablo III, World of Warcraft, and Hearthstone: Heroes of Warcraft, which had more than 10 million downloads. He said digital channels accounted for 68 percent of revenue, setting a new record.

Kotick added, “We have a strong product pipeline for the balance of the year, beginning with the September 9 planned launch of Destiny, which we believe could become our next billion-dollar franchise and the largest new video game IP [intellectual property] launch in history. Activision Publishing also recently announced that Skylanders: Trap Team and Call of Duty: Advanced Warfare are expected to be released on October 5 and November 4, respectively. In addition to plans for new content for Hearthstone: Heroes of Warcraft and the release of Diablo III: Ultimate Evil Edition on console later this year, Blizzard Entertainment expects to launch World of Warcraft: Warlords of Draenor, which is already one of the fastest-selling expansions in the franchise’s history based on pre-sales, in the second half of 2014.”

During the quarter, Blizzard released Hearthstone: Heroes of Warcraft, a free-to-play collectible card game on iPad, and it had a strong mobile debut. And on March 25, it launched its Diablo III expansion, Reaper of Souls. That game sold through more than 2.7 million copies in its first week of sales. Michael Pachter, an analyst at Wedbush Securities, said in a research note that he expects a very strong release slate for Activision in 2014.

The company recently unveiled Call of Duty: Advanced Warfare, which will star actor Kevin Spacey and a have a story that focuses on conflicts involving private military corporations. Blizzard is expected to release its World of Warcraft expansion, Warlords of Draenor, later this year.

Kotick said in an interview with Reuters that the upcoming Destiny game being built by developer Bungie represents a huge investment. He said his company plans to spend more than $500 million developing and marketing the game. (The figure also includes packaging, infrastructure support, royalties, and other costs.)

“If you’re making a $500 million bet, you can’t take that chance with someone else’s intellectual property,” Kotick said. “The stakes for us are getting bigger.”

That would make Destiny the biggest game launch of all time. By comparison, Take-Two Interactive and Rockstar Games spent around $260 million to develop, produce, and market Grand Theft Auto V.