Highlights
- Better than expected results – exceeded the company’s prior outlook in terms of GAAP revenues, net bookings, GAAP and non-GAAP EPS.
- Reiterated strong demand for the company’s content – intends to hire more than 2,000 developers over the next 2 years.
- Net revenue $2.28B +27% yoy, GAAP EPS $0.79 +21% yoy.
- Activision revenue grew 72% yoy, led by Call of Duty franchise. Operating income >2x yoy, MAUs increased by 40% yoy, >3x over the last 2 years, hitting new record of 150M MAUs.
- Blizzard revenue only grew 7% yoy, led by Warcraft franchise. WoW Shadowlands expansion released in November helped franchise net bookings grow sharply yoy. 27M MAUs.
- King revenue grew 22% yoy, led by Candy Crush franchise. 258M MAUs. In-game net bookings and advertising revenue grew yoy.
- High operating margins (Activision 50%, Blizzard 43%, King 33%).
- Operating cash flow and Free cash flow significantly higher yoy. Net cash position of $5.87B vs 3.28B last year.
- Increased cash dividend to $0.47 per share +15% yoy.
- 2021 financial outlook raised – net revenue $8.37B vs $8.225B (+1.8%), GAAP EPS $2.91 vs $2.83 (+2.8%), non-GAAP EPS $3.42 vs $3.34 (+2.4%).
My Thoughts
Activision Blizzard is showing exceptionally strong growth especially in its Activision segment, led by Call of Duty franchise. King segment is also performing well, and seems to be making good progress in driving more in-game bookings and advertising revenues. Blizzard segment however, seems to be a laggard with the slowest revenue growth and smallest user base.
That said, nothing not to like in this Q1 earnings results. Top line and bottom line growing. Strong operating margins. Increasing cash flows and cash pile, leading to a dividend increase.
Activision Blizzard may have benefited from pandemic tailwinds, but there are no signs of growth slowing down nor any expectations of such by management even as anticipation of a return to normalcy gathers pace.
ATVI currently trades at ~$95/share (as of 7/5/2021 close), market cap ~$74B, P/S 8.6x, trailing P/E 32x. Valuations don’t seem ridiculous.
ATVI is my only pure gaming play. I do also hold Microsoft (MSFT) and Sea Limited (SE), but gaming is not their largest revenue driver. Currently, ATVI is only 0.9% of the Family Portfolio but with this excellent earnings results I’m inclined to add to my position going forward. I may look to accumulate shares below $89/share on any pullbacks.
Disclosure: I’m long ATVI, MSFT, and SE.
Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.