ATVI Activision Blizzard Inc

By Sarah E. Needleman 

Activision Blizzard Inc. banked on a one-two punch of growing digital sales and newly acquired King Digital Entertainment PLC to deliver strong first-quarter earnings and a more robust full-year outlook.

The videogame giant's addition of King Digital paid off from the get-go. The mobile game maker, which Activision acquired in late February for $5.9 billion, pitched in about 23% of adjusted revenue in the quarter.

After folding in King's gamers, Activision boasts it now has 544 million monthly active users -- a metric normally used by social media companies such as Facebook Inc. and Twitter Inc. While more than three-quarters of those users come from King, the company behind "Candy Crush Saga," Activision is growing other properties, too. It said 50 million people play "Hearthstone: Heroes of Warcraft," a mobile game from its Blizzard unit.

Activision is eager to tout its engaged base of gamers as it builds out a division dedicated to competitive gaming, also called e-sports. Next week, Activision is expected to make its e-sports pitch at NewFronts, an annual digital-media conference.

Piper Jaffray analyst Mike Olson said one way King could squeeze more money out of its games is through advertising. The company ditched in-game ads in 2013 in favor of promoting only its own titles. "We think [advertising] is a no-brainer," Mr. Olson said. "It's basically free money."

A day ago, Zynga Inc. reported better-than-expected results in part due to growing advertising revenue.

Activision posted adjusted revenue of $908 million, up 29% from a year earlier. Its adjusted profit rose to 23 cents a share from 16 cents a year ago.

Activision's shares, which have risen 50% in the past year, closed up 1.8% at $34.91 at 4 p.m. in New York. In after-hours trading, shares were up 2.8% at $35.89.

The results trounced forecasts from Wall Street, which already had thought Activision was playing it too conservative with the numbers. Analysts surveyed by Thomson Reuters had expected adjusted revenue of $812.9 million and profit of 12 cents a share. Both figures were more than Activision had forecast for the quarter.

Under U.S. accounting rules, videogame companies defer some revenue from certain online-enabled games. Adjusted revenue counts all sales in the quarter, along with excluding certain factors Wall Street and the company don't consider a regular part of business.

Activision continues to reap the rewards of the industry's embrace of digital downloads. Revenues from content sold inside of Activision and Blizzard games rose 20% from a year earlier -- 80% when factoring in King. Activision said it doubled the number of "Call of Duty" gamers who made in-game purchases, though the amount of money it generated from these buyers held steady.

Adjusted digital revenue rose 48% from a year ago to $797 million. Sales of digital content such as full games, expansion packs and virtual goods made up 88% of total adjusted revenues.

Activision's revenue under generally accepted accounting principles rose to $1.46 billion from $1.29 billion. Net fell to $336 million from $394 million.

Activision expects second-quarter adjusted revenue of $1.38 billion and adjusted profit of 38 cents a share. The company nudged up its full-year outlook. It now expects $6.28 billion in adjusted revenue, up from $6.25 billion, and $1.78 in per-share profit, up from $1.75. Wall Street expects full-year adjusted revenue of $6.3 billion and per-share profit of $1.76.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

May 05, 2016 18:31 ET (22:31 GMT)

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