Activision Blizzard’s Q2 2023 earnings release paints a nuanced picture, characterized by the thriving performance of flagship franchises alongside the underwhelming engagement metrics for Overwatch 2.
The company delivered robust financial results, with net bookings surging 50% year-over-year to $2.46 billion. This affirms that Activision Blizzard’s focus on supporting core title roadmaps continues to drive growth.
A key highlight was Blizzard recording its first-ever $1 billion net bookings quarter, fueled by the tremendously successful launch of Diablo IV. With over 10 million units sold in June, Diablo 4 generated blockbuster momentum right out of the gate.
However, Overwatch 2 presents a contrasting story. After an initial spike in engagement post-launch in 2022, the game saw waning player interest in Q2 2023. The upcoming Season 2 content release on August 10th represents a critical juncture, with expectations that the new missions, modes, hero, and progression system can reinvigorate the Overwatch community.
Blizzard Earnings Summary
- Activision Blizzard reported strong financial results for Q2 2023, with net bookings up 50% year-over-year to $2.46 billion.
- GAAP revenue grew 34% to $2.21 billion and GAAP earnings per share increased 103% to $0.74.
- The strong performance was driven by the successful launch of Diablo IV, record results from Blizzard, and continued growth in Call of Duty live operations and King mobile games.
Activision Blizzard provided some updates on Overwatch results and plans in the earnings release. Engagement and player investment in Overwatch 2 declined sequentially in Q2 after the launch last October.
The Overwatch team is preparing for the Season 2 content release coming on August 10th. This will be the biggest seasonal update yet and will include new story missions, a new game mode, a new hero, and a revamped hero progression system.
The company highlighted that revenues from the Overwatch League make up less than 1% of total consolidated net revenues.
Activision Blizzard noted that the collaborative arrangements with Overwatch League team owners are facing challenges. An amendment was made so that after the current season teams can vote on updated terms. If terms are not agreed, a $6 million termination fee would be payable per team.
Overwatch 2 In Decline
The league economics for the Overwatch League continue to be questionable. The termination fee arrangement indicates Activision is willing to unwind these agreements if needed.
Overwatch remains a fairly small contributor to overall financial results. Investors are focused on the future prospects for major franchises like Call of Duty and Candy Crush.
This is relatively true looking at the Overwatch 2 Chart player count for the past coupon of months:
In short, while Overwatch 2 has struggled to sustain its initial momentum, the franchise is not financially material for Activision Blizzard. The focus remains on executing the content roadmaps for larger core titles.
Key Takeaways
- Activision Blizzard delivered very strong results, driven by key franchise launches like Diablo IV and live operations momentum in Call of Duty and Candy Crush.
- The company is performing well financially, with significantly higher profitability and operating cash flow versus last year.
- Overwatch 2 saw declining engagement in Q2 after the launch spike in 2022. The seasonal content will be crucial to regain player interest.
- The Microsoft acquisition timeline has been extended but the deal remains on track to close in 2023. Activision continues to execute well as an independent company.
Performance Highlights
- Blizzard had its first ever $1 billion net bookings quarter, driven by the launch of Diablo IV which sold over 10 million units in June. Diablo IV had strong engagement of over 700 million hours played.
- Call of Duty net bookings on console and PC grew strongly year-over-year, driven by Modern Warfare II. Q2 in-game spending was the highest yet for the title.
- King delivered another record revenue quarter with strength across the Candy Crush franchise. Advertising revenue also grew.
Financial Results
- On a non-GAAP basis, operating margin was 32% compared to 29% last year. Earnings per share was $0.91 versus $0.48.
- Operating cash flow for the quarter was $590 million compared to $198 million last year.
- The company expects full year financial results to be strong, with high-teens GAAP revenue growth and high-single digit growth in net bookings and operating income.
Microsoft Acquisition
- The timeline for completing the $95/share acquisition by Microsoft has been extended to October 2023. The termination fee payable to Activision has been increased.
- The Activision Blizzard Board of Directors declared a one-time cash dividend of $0.99 per share.
Activision Blizzard’s Q2 results significantly beat expectations, demonstrating strong business momentum ahead of the closing of the Microsoft deal. The company is firing on all cylinders and its major franchises are resonating well with players. However, Overwatch 2 is leaving behind by its declined engagement.
