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NEWS ALERT January 18, 2022, 9:42 a.m. EST: On Tuesday, Microsoft announced plans to acquire video game developer Activision Blizzard for $68.7 billion. The acquisition, Microsoft’s largest, represents a substantial investment in gaming and the metaverse.
Activision Blizzard (ATVI) is a global entertainment holding company that develops and publishes interactive video content and services. It’s best known for franchises including World of Warcraft, Call of Duty, StarCraft, and Bubble Witch. Founded in 2008 from the merger of Activision and Vivendi Games, the company develops and distributes its video games and services on game consoles, personal computers (PCs), and mobile devices. Activision Blizzard also operates eSports leagues and sells digital advertising.
The company faces competition from other interactive entertainment companies, as well as competitors that provide other forms of entertainment, including film, television, social networking, music, and other types of consumer entertainment. Activision Blizzard’s biggest competitors within the gaming industry include Microsoft (MSFT), Sony (SNE), and Nintendo (7974).
Key Takeaways
- Activision Blizzard develops and publishes interactive entertainment for use on video game consoles, PCs, and mobile devices, and also operates eSports leagues.
- The company’s business is conducted through three major business segments, which include Activision, Blizzard, and King.
- The Activision segment, which develops and sells video games, is the company’s biggest revenue and profit generator.
- Activision Blizzard is focusing on sharply expanding revenue from its eSports offerings and advertising.
- In January 2022, Microsoft announced plans to acquire Activision Blizzard for $68.7 billion in a deal that would close in 2023.
Activision Blizzard’s Financials
Activision Blizzard generates revenue from three main distribution vehicles. These include content distributed via digital online channels (over 82% of total revenue), retail channels (just over 9%), and other sources (more than 8%).
On Nov. 2, 2021, Activision Blizzard reported its third-quarter results for the period ending Sept. 30, 2021. The company posted net income of $639 million on total revenue of $2.07 billion during the quarter. Net income rose by about 5.8% compared to the same quarter from 2020 while revenue increased by over 5.93% during the same period.
As for separate gaming platforms, the company reported the following for each category as a percentage of total revenue for the third quarter of 2021:
- Content for Video Game Consoles: 25%
- PC-Related Content: 28%
- Mobile and Ancillary (including non-platform-specific game-related revenues such as standalone sales of toys and accessories): 40%
- Other Sources: 7%
Activision Blizzard noted that its financial results for the quarter were above its expectations. Monthly active users reported were higher than those from the third quarter of the previous year. Net bookings and operating income also rose between those periods. Some of the notable highlights for the quarter included the launch of the video game Diablo II: Resurrected under the Blizzard segment along with advertising and in-app purchases made by users for its mobile games like Candy Crush.
Activision Blizzard’s Business Segments
The company conducts its business through the following three segments and breaks out the revenue and operating income for each: Activision Publishing Inc. (“Activision”), Blizzard Entertainment Inc. (“Blizzard”), and King Digital Entertainment (“King”).
Activision
Activision develops and publishes interactive software products and entertainment content, which it delivers through both premium and free-to-play offerings. It generates revenue from full-game and in-game sales as well as from licensing software to third-party or related-party companies that distribute its products.
Activision’s key product franchise is Call of Duty. The business also generates revenue from its Call of Duty League, a global professional eSports league.
Revenue dropped for the segment on a year-over-year (YOY) basis in Q3-2021 by about 17% in FY 2020. Revenue for the segment was $641 million, compared to $773 million from the same period in 2020. Operating income fell by about 29.3% to $244 million compared to $345 million from the same period from the previous year.
Blizzard
Blizzard develops and publishes interactive software products and entertainment content, which it delivers through both premium and free-to-play offerings. It generates revenue from full-game and in-game sales, subscriptions, and licensing software to third-party or related-party companies that distribute its products. The business also maintains a proprietary online gaming service, Blizzard Battle.net.
Blizzard’s key product franchises include World of Warcraft, Hearthstone, Diablo, and Overwatch. Blizzard also includes activities related to the Overwatch League, a global professional eSports league. As noted above, the company launched Diablo II: Resurrected in September 2021.
Revenue rose roughly 20% in the third quarter of 2021 to $493 million, compared to $411 million from the Q3-2020 period. Operating income rose 41.3% to $188 million.
King
King develops and publishes interactive entertainment content and services, particularly for the mobile platform. It delivers content mostly through free-to-play offerings and generates revenue primarily from in-game sales and in-game advertising. Its key product franchise is Candy Crush while Farm Heroes is its second-largest franchise.
Revenue rose more than 21.6% in Q3-2021 to $652 million. Operating income rose 22.2% to $303 million.
A note to readers that Activision Blizzard also generates some revenue and operating income from its distribution business, which is not represented as a reportable segment and falls under the company’s “Other” category.
Activision Blizzard’s Recent Developments
Throughout the second half of 2021, Activision Blizzard was embroiled in controversy after the California Department of Fair Employment and Housing filed a lawsuit alleging the company fostered an environment in which women were subjected to persistent harassment and discrimination. That lawsuit set off a flurry of legal action against the company, including an Equal Employment Opportunity Commission suit that Activision settled for $18 million.
Despite the controversy, Microsoft announced in January 2022 that it planned to acquire Activision Blizzard for $68.7 billion. The deal, subject to shareholder and regulatory approval, is expected to close in the 2023 fiscal year.
How Activision Blizzard Reports Diversity and Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Activision Blizzard and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Activision Blizzard releases. It shows Activision Blizzard does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Activision Blizzard does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.