By Sarah E. Needleman
Activision Blizzard Inc. on Thursday said it expected lower
revenue and profit in 2015, partly blaming--as many other companies
have--the impact it expects in foreign-exchange markets.
The videogame publisher projected full-year revenue of $4.14
billion and per-share profit of 89 cents a share. That is lower
than the $4.41 billion in revenue and $1.13 a share in profit
Activision booked for 2014. The company said on its earnings
conference call that it expects to return to profitable growth in
2016.
Activision derives about half of its annual revenue overseas. It
said its hedging program helped it avoid significant impact from
currencies in the fourth quarter, but that a weakening euro hit its
2015 outlook. The company said 6 percentage points of its projected
9% decline in adjusted revenue is because of the currency
impact.
The rest of the projected decline was attributed to a higher tax
rate, as well as investing in its second free-to-play game, "
Heroes of the Storm," due out this year. Activision called
free-to-play one of its fastest-growing platforms, and one that is
able to scale up profitably as it said it did with "Hearthstone."
But it cautioned that successful free-to-play games take time to
generate significant revenue.
Investors punished Activision shares in after-hours trading,
pushing the stock down nearly 8%.
The 2015 outlook marred an earnings report that Activision
otherwise said showed a record year in 2014 that turned out better
than it had expected. It reported slightly higher revenue and lower
costs in the holiday quarter, helping it to more than double its
profits for the final three months of the calendar.
The top line was a mixed bag. Despite two big titles for the
holidays--"Call of Duty: Advanced Warfare" and "Destiny"--revenue
from product sales was lower from a year earlier. Revenue from
subscriptions and licensing, though, was up, thanks to a new
expansion for the "World of Warcraft" online role-playing game.
That helped total revenues rise 3.8% to $1.58 billion from $1.52
billion.
Excluding deferred revenue that comes from some online games,
revenue fell 2.6% to $2.21 billion. That topped the company's
forecast of $2.2 billion that it had given at the end of the third
quarter, but it didn't meet the $2.24 billion expected by analysts,
according to Thomson Reuters.
The company padded its bottom line in part by slashing nearly
$100 million in costs from products and development, as well as
administrative expenses. That boosted operating income to $438
million from $284 million.
Net income more than doubled to $361 million, or 49 cents a
share, from $174 million, or 22 cents a share a year earlier.
Adjusting for deferred revenue, profit jumped 12% to $698 million,
or 94 cents a share--well above Wall Street's forecast of 88 cents
a share.
Several of Activision's best-known titles are online games like
"Warcraft" and "Hearthstone," which have better margins and
generate consistent streams of revenue through subscriptions and
in-game purchases.
Digital revenue, which includes downloads of full games, add-ons
and other content purchased online, made up 34% of revenue. For the
full-year, Activision said digital comprised 46% of total revenues.
"Call of Duty" downloads, for example, doubled from a year earlier,
with demand coming from the new PlayStation and Xbox consoles as
well as the prior generation machines, the company said.
"Warlords of Draenor," an expansion for the long-running
"Warcraft" franchise, sold more than 3.3 million copies in its
first 24 hours. That helped drive subscriptions to more than 10
million globally by the end of the year. At the end of September,
it had more than 7.4 million subscribers.
Activision raised its dividend by 15% to 23 cents a common share
and said it would buy back $750 million in stock over the next two
years.
Corrections & Amplifications
Activision Blizzard said it expects lower full-year revenue and
profit amid foreign-exchange concerns. An earlier version of the
headline to this article incorrectly said the company lowered its
outlook.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
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