Activision Blizzard beats Q3 outlook

[UPDATE] Publisher posts better-than-expected sales of $711 million, merger costs weigh down total losses to $108 million.

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Last week, publishing heavyweight Electronic Arts reported strong revenues that were deflated due to a greater-than-expected $310 million loss. For EA rival Activision Blizzard the outcome was much the same, with the publisher seeing substantial revenue gains during the July-September period, but also mounting losses.

For its first quarter as a joined entity, Activision Blizzard reported net revenues of $711 million. The publisher did not reveal an apples-on-apples matchup of the gamemaker's previous year's performance, saying only that controlling-partner Vivendi Games posted $326 million for the same period a year ago. Add in Activision's July-September 2007 tally of $317 million, and the combined effort would have amounted to approximately $644 million a year ago.

Whereas EA saw a massive splash of red in its profit/loss column, Activision Blizzard's losses skewed toward magenta. For the quarter, Activision Blizzard reported a loss of $108 million, a sharp contrast from the $48 million and $700,000 profits posted for the same period last year by Vivendi Games and Activision, respectively. However, the publisher noted that much of its losses were due to restructuring costs associated with the merger. For the recently completed quarter, Activision Blizzard saw operating losses also take a dive to $194 million.

Putting a positive spin on the quarterly results, Activision Blizzard CEO Bobby Kotick noted that the company's sales beat its quarterly guidance of $620 million. "Our performance was driven by continued strong worldwide sales of Call of Duty 4: Modern Warfare, Guitar Hero: Aerosmith and Guitar Hero: On Tour, Blizzard Entertainment's World of Warcraft, and the international release of LucasArts' Star Wars: The Force Unleashed," said the exec in a statement.

Of note, in breaking out its quarterly revenues by segments, Activision Blizzard revealed that its massively multiplayer online gaming business--that is, World of Warcraft--generated $271 million for the three-month period. That tally amounts to just $1 million less than Activision Blizzard's total console business, with both segments contributing an equal 38 percent to the publisher's bottom line. Last week, Blizzard revealed that WOW's global subscriber count had surpassed 11 million.

In light of today's earnings announcement, Activision Blizzard reaffirmed its fiscal-year guidance, projecting $4.9 billion in sales and $1.2 billion in operating income for the full 12-month period. The publisher also announced a plan to buy back $1 billion of its shares, though no other details on this venture were provided.

[UPDATE] Activision Blizzard provided no shocking revelations in its post-earnings conference call. However, the publisher did shed some light on the performance of a few of its flagship franchises.

Regarding Guitar Hero World Tour, CEO Bobby Kotick noted that more than 25,000 user-generated songs had been uploaded to Guitar Hero World Tour by way of the game's Studio Mode. The publisher was evasive in saying just how many units of the title had sold through in its first 10 days at retail, but did note that launch quantities were "virtually sold out" in all regions.

The publisher also provided a brief update on the Treyarch-developed Call of Duty: World at War. With the franchise set to return to World War II next week, Activision Blizzard said that preorders were outpacing those of last year's award-winning modern-combat shooter Call of Duty 4.

Lastly, Blizzard Entertainment boss Mike Morhaime briefly addressed World of Warcraft's performance in light of the launches of Funcom's Age of Conan and EA Mythic's Warhammer Online. "Even though the quarter was bookended by competitors in the MMO space, the World of Warcraft subscriber base continued to grow," he said. "To date, 68 percent of the players who listed Age of Conan as a reason for cancellation, and 46 percent of the players who listed Warhammer as the reason for cancellation, have reactivated subscriptions to World of Warcraft."

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