By Sarah E. Needleman
Activision Blizzard Inc. banked on a one-two punch of growing digital sales and newly acquired King Digital Entertainment PLC to deliver strong first-quarter earnings and a more robust full-year outlook.
The videogame giant's addition of King Digital paid off from the get-go. The mobile game maker, which Activision acquired in late February for $5.9 billion, pitched in about 23% of adjusted revenue in the quarter.
After folding in King's gamers, Activision boasts it now has 544 million monthly active users -- a metric normally used by social media companies such as Facebook Inc. and Twitter Inc. While more than three-quarters of those users come from King, the company behind "Candy Crush Saga," Activision is growing other properties, too. It said 50 million people play "Hearthstone: Heroes of Warcraft," a mobile game from its Blizzard unit.
Activision is eager to tout its engaged base of gamers as it builds out a division dedicated to competitive gaming, also called e-sports. Next week, Activision is expected to make its e-sports pitch at NewFronts, an annual digital-media conference.
On a conference call with analysts, King Digital Chief Executive Riccardo Zacconi said one way the company may be able to squeeze more money out of its games is through advertising. The company ditched in-game ads in 2013 in favor of only promoting its own titles. But recently it's begun experimenting with ads again in two of its games.
"Advertising could be a meaningful revenue stream for King in the long term," Mr. Zacconi said. "It is early days."
Piper Jaffray analyst Mike Olson said the move would be "a no-brainer."
"It's basically free money," he said.
A day ago, Zynga Inc. reported better-than-expected results in part due to growing advertising revenue.
Activision posted adjusted revenue of $908 million, up 29% from a year earlier. Its adjusted profit rose to 23 cents a share from 16 cents a year ago.
Activision's shares, which have risen 50% in the past year, closed up 1.8% at $34.91 at 4 p.m. in New York. In after-hours trading, shares were up 2.8% at $35.89.
The results trounced forecasts from Wall Street, which already had thought Activision was playing it too conservative with the numbers. Analysts surveyed by Thomson Reuters had expected adjusted revenue of $812.9 million and profit of 12 cents a share. Both figures were more than Activision had forecast for the quarter.
Under U.S. accounting rules, videogame companies defer some revenue from certain online-enabled games. Adjusted revenue counts all sales in the quarter, along with excluding certain factors Wall Street and the company don't consider a regular part of business.
Activision continues to reap the rewards of the industry's embrace of digital downloads. Revenues from content sold inside of Activision and Blizzard games rose 20% from a year earlier -- 80% when factoring in King. Activision said it doubled the number of "Call of Duty" gamers who made in-game purchases, though the amount of money it generated from these buyers held steady.
Adjusted digital revenue rose 48% from a year ago to $797 million. Sales of digital content such as full games, expansion packs and virtual goods made up 88% of total adjusted revenues.
Activision's revenue under generally accepted accounting principles rose to $1.46 billion from $1.29 billion. Net fell to $336 million from $394 million.
Activision expects second-quarter adjusted revenue of $1.38 billion and adjusted profit of 38 cents a share. The company nudged up its full-year outlook. It now expects $6.28 billion in adjusted revenue, up from $6.25 billion, and $1.78 in per-share profit, up from $1.75. Wall Street expects full-year adjusted revenue of $6.3 billion and per-share profit of $1.76.
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