Activision Blizzard Announces Better-Than-Expected Third Quarter 2010 Financial Results

Third Quarter Net Revenues and EPS Exceed Prior Outlook and Prior Year. Company Increases 2010 Net Revenue and EPS Outlook.

SANTA MONICA, Calif. , Nov. 4, 2010 — Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2010.  

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP net revenues were $745 million , as compared to its prior third-quarter outlook of $600 million .  On a non-GAAP basis, the company’s net revenues were $857 million , as compared to its prior third-quarter outlook of $725 million .  

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP earnings per diluted share were $0.04 , as compared to its prior third-quarter outlook of break even GAAP earnings per share.  On a non-GAAP basis, the company’s earnings per diluted share were $0.12 , as compared to its prior third-quarter outlook of $0.08 .  

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

Robert Kotick , CEO of Activision Blizzard , stated, “For the third quarter, we exceeded our net revenues and earnings per share outlook and delivered strong year-over-year growth.  Our better-than-expected results are due to our leadership in online entertainment, including strong performance from Activision Publishing’s Call of Duty® franchise, and Blizzard Entertainment’s World of Warcraft® and StarCraft® II: Wings of Liberty™.  For the nine months ending September 30, 2010 , our digital offerings contributed close to half of our total non-GAAP net revenues and our digital revenues have increased more than 15% over the prior year.  Most importantly, we continue to deliver some of the world’s best games.”

 

Kotick continued, ” Activision Publishing is about to introduce what is likely to be the biggest entertainment launch of the year with Call of Duty®: Black Ops, followed by Blizzard Entertainment’s World of Warcraft: Cataclysm™, which we believe will deliver an incredible breadth of new content to the world’s largest massively multiplayer online role playing game (MMORPG) community.  As a result of our over-performance, we are raising our calendar year 2010 net revenue and earnings outlook.  We expect to deliver the most profitable year in our history with record operating margins.”

Business Highlights

For the first nine months of the calendar year, Activision Publishing’s Call of Duty was the #1 third-party franchise in the U.S. and Europe , and Blizzard Entertainment’s StarCraft II: Wings of Liberty was the #1 PC title overall, according to The NPD Group , Charttrack and Gfk.  Additionally, for the third quarter of the calendar year, Activision Blizzard was the #1 PC publisher in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.  

Other highlights are as follows:

• During the third quarter of 2010, Call of Duty remained a top-10 franchise overall in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.
• On August 3 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than one million copies within the first 24 hours of its release, instantly making it the best-selling PC game of 2010, and more than 1.5 million copies within the first 48 hours of its release, making it the fastest-selling strategy game of all time.
• On August 31 , Blizzard Entertainment and NetEase.com Inc. launched World of Warcraft: Wrath of
  the Lich King™, the second expansion for Blizzard Entertainment’s award-winning subscription-based MMORPG, in mainland China .
• On September 1 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than three million copies worldwide in the first month of its release.
• On October 4 , Blizzard Entertainment announced that World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, will be released on December 7 .
• On October 5 , Activision
  Publishing announced that Treyarch’s Call of Duty: Black Ops will be playable in stereoscopic 3D when the game launches at retail outlets worldwide on November 9 .
• On October 7 ,  Blizzard Entertainment announced that the subscriber base for World of Warcraft has exceeded 12 million players worldwide.
• As of September 30 , Activision Blizzard had purchased approximately 55 million shares of its common stock, for approximately $600 million , under the $1 billion stock repurchase program authorized by its Board of Directors on February 10 .

Additionally, on September 7 , advertising industry veteran Eric Hirshberg joined Activision Publishing as Chief Executive Officer, to oversee operational management of the publishing division’s studio, product development and consumer marketing functions.  

Company Outlook

In the fourth quarter of 2010, Activision Publishing expects to release six new titles including Bakugan™: Defenders of the Core, a highly anticipated kids title based on the award-winning toy line and television show;  DJ Hero 2®, which delivers an exciting social multiplayer music experience where two virtual DJs can mix together while a vocalist sings along to lyrics from today’s biggest hits; Goldeneye 007™, which was designed to make full use of the Nintendo Wii’s™ unique interactive capabilities and allows players to channel Daniel Craig ‘s lethal and gritty James Bond in a new take on the legendary Bond adventure;   James
Bond 007™: Bloodstone, a cinematic action game that allows players to experience the brutal and dangerous style of Daniel Craig ‘s Bond as they engage in hand-to-hand fighting, cover-based shooting, and aggressive driving through dynamic environments; and Tony Hawk®: SHRED, which lets kids “ GO BIG ” and feel the exhilaration of skate and snowboarding like the pros using the game’s motion-sensing board controller.

Activision Publishing also plans to release Treyarch’s highly anticipated first-person action game Call of Duty: Black Ops globally on November 9 .  The company expects the title will be one of the top entertainment properties of the holiday season and we expect that pre-orders for the game will set an industry record.  

Additionally, on December 7 , Blizzard Entertainment expects to release World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, World of Warcraft.  

Activision Blizzard ‘s outlook is based on assumptions about sell through rates for its products and the launch timing, success and pricing of its new slate of products which are subject to significant risks and uncertainties, including possible declines in the overall demand for video games and in the demand for the company’s products, the dependence in the interactive software industry and by the company on an increasingly limited number of popular franchises for a disproportionately high percentage of revenues and profits, the company’s ability to predict shifts in consumer preferences among genres, such as music and casual games, and competition.  Current macroeconomic conditions and market conditions within the video game industry increase those risks and uncertainties.  

The company’s outlook is also subject to other risks and uncertainties,  including litigation and associated costs, fluctuations in foreign exchange and tax rates, counterparty risks relating to customers, licensees, licensors and manufacturers.  As a result of these and other factors, actual results may deviate materially from the outlook presented below.

For the full year 2010, Activision Blizzard is raising its outlook for GAAP net revenues to $4.28 billion and GAAP earnings per diluted share to $0.51 , as compared to its prior GAAP outlook of $4.18 billion in net revenues and $0.49 in earnings per diluted share.  On a non-GAAP basis, the company now expects net revenues of $4.45 billion and $0.74 earnings per diluted share, as compared to its prior non-GAAP net revenue outlook of $4.4 billion and $0.72 in earnings per diluted
share.

For the fourth quarter of 2010, Activision Blizzard expects GAAP net revenues of $1.26 billion , and a GAAP loss per share of $0.01 . On a non-GAAP basis, the company expects net revenues of $2.2 billion and $0.47 earnings per diluted share for the fourth quarter.

Conference Call

Today at 4:30 p.m. EDT , Activision Blizzard ‘s management will host a conference call and Webcast to discuss the company’s results for the quarter ended September 30, 2010 and management’s outlook for the remainder of the calendar year.

The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast, or to listen to the call live by dialing into 877-397-0297 in the U.S. with the passcode 5382478.

Non-GAAP Financial Measures

Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) the following items: the impact of the change in deferred net revenues and related cost of sales with respect to certain of the company’s online-enabled games; expenses related to share-based payments; Activision Blizzard ‘s non-core exit operations (which are the operating results of products and operations of the historical Vivendi Games, Inc. businesses that the company has exited or substantially wound down); costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and
restructuring activities); the amortization of intangibles and impairment of intangible assets; and the associated tax benefits.

Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard ‘s financial and operating performance because they facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard . Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, as well as in planning and forecasting.

Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.  Activision Blizzard recognizes that there are limitations associated with the use of these non-GAAP financial measures.

Activision Blizzard ‘s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard ‘s performance in relation to other companies.  

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard ‘s GAAP as well as non-GAAP results and outlook and, in this release, by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

About Activision Blizzard

Headquartered in Santa Monica, California , Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading positions across every major category of the rapidly growing interactive entertainment software industry.

Activision Blizzard maintains operations in the U.S., Canada , the United Kingdom , France , Germany , Ireland , Italy , Sweden , Spain , the Netherlands , Australia , South Korea and China .  More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

Cautionary Note Regarding Forward-looking Statements:  Information in this press release that involves Activision Blizzard ‘s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties.    Activision Blizzard generally uses words such as “outlook,” “will,” “could,” “would,” “might,” “remains,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” “anticipates,” “estimate,” “future,” “plan,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and similar expressions to identify forward-looking statements.  Factors that could cause Activision Blizzard ‘s actual future
results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard ‘s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment and market conditions within the video game industry, the seasonal and cyclical nature of the interactive game market, Activision Blizzard ‘s ability to predict consumer preferences among competing hardware platforms, possible declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard ‘s products,  adoption rate and availability of new hardware (including
peripherals) and related software, industry competition including from used games and other forms of entertainment, litigation risks and associated costs, rapid changes in technology, industry standards, business models including online and used games, and consumer preferences including interest in specific genres such as music, first-person action and massively multiplayer online games, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality “hit” titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, and the identification of
suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other  factors  identified in the risk factors sections of Activision Blizzard ‘s most recent annual report on Form 10-K.   The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements.  Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are
subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

(Tables to Follow)