First Quarter Mobile Net Bookings Grew Double-Digits Year-Over-Year

First Quarter GAAP Operating Income Grew Approximately 70% Year-Over-Year, Segment Operating Income Grew Approximately 30% Year-Over-Year

Santa Monica, CA — Activision Blizzard, Inc. announced first quarter 2023 results.

Bobby Kotick, CEO of Activision Blizzard, shared, “In our 33rd year, Activision Blizzard is performing exceptionally well. Every one of our key intellectual properties continues to grow year-over-year, with Call of Duty once again a key driver of growth. Mobile net bookings grew double digits including another record quarter for King. Pre-sales for Diablo IV are strong. And none of this would be possible without our people, who deliver excellence for our players every single day. We remain confident that our deal with Microsoft benefits competition, consumers, and job creation in markets around the world, especially in the UK. The CMA’s report today does not reflect these realities, and we will work aggressively with Microsoft to reverse it on appeal.”

Financial Metrics

Please refer to the tables at the back of this earnings release for a reconciliation of the company’s GAAP and non-GAAP results.

For the quarter ended March 31, 2023, Activision Blizzard’s net revenues presented in accordance with GAAP were $2.38 billion, as compared with $1.77 billion for the first quarter of 2022. GAAP net revenues from digital channels were $2.16 billion. GAAP operating margin was 34%. GAAP earnings per diluted share was $0.93, as compared with $0.50 for the first quarter of 2022. On a non-GAAP basis, Activision Blizzard’s operating margin was 40% and earnings per diluted share was $1.09, as compared with $0.64 for the first quarter of 2022.

Activision Blizzard generated $577 million in operating cash flow for the quarter as compared with $642 million for the first quarter of 2022.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Operating Metrics

For the quarter ended March 31, 2023, Activision Blizzard’s net bookingsB were $1.86 billion, as compared with $1.48 billion for the first quarter of 2022. In-game net bookingsC were $1.29 billion, as compared with $1.01 billion for the first quarter of 2022.

For the quarter ended March 31, 2023, overall Activision Blizzard Monthly Active Users (MAUs)D were 368 million.

Microsoft Transaction

As announced on January 18, 2022, Microsoft plans to acquire Activision Blizzard for $95.00 per share in an all-cash transaction. The transaction has been approved by the boards of directors of both Activision Blizzard and Microsoft and by Activision Blizzard’s stockholders.

On April 26, 2023, the United Kingdom Competition and Markets Authority (“CMA”) announced a decision to block the merger, stating that competition concerns arose in relation to cloud gaming and that Microsoft’s remedies addressing any concerns in cloud gaming were not sufficient. Activision Blizzard considers that the CMA’s decision is disproportionate, irrational and inconsistent with the evidence. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. Activision Blizzard continues to believe that the deal is pro-competitive, will bring Activision Blizzard content to more gamers, and will result in substantial benefits to consumers and developers in the UK and globally. The parties continue to fully engage with other regulators reviewing the transaction to obtain any required regulatory approvals.

First quarter growth was broad-based, with net bookings increasing year-over-year in each of our five largest intellectual properties: Call of Duty®, Candy Crush®, Warcraft®, Overwatch®, and Diablo®. We continued to deliver strong results for our intellectual properties on the strategically-important mobile platform, with mobile net bookings growing double-digits year-over-year, driven by Candy Crush, Call of Duty Mobile and last year’s launch of Diablo Immortal.

Our robust product pipeline, live game opportunity, and focus on operational discipline continue to create a foundation for strong financial performance for the full year. We remain cognizant of risks, including those related to our execution, economic conditions, the labor market and exchange rates, as well as headwinds for our professional esports business model. Nonetheless, we continue to expect at least high-teens year-over-year growth for GAAP revenue in 2023, and at least high-single digit year-over-year growth in net bookings and total segment operating income for the year.

Demand indicators for Diablo IV, which launches on June 6, are strong, although we continue to plan prudently. We expect Activision Blizzard second quarter GAAP revenue to grow at least 10%, net bookings to grow at least 30%, and total segment operating income to grow at least 40%, in each case on a year-over-year basis.

Activision

• Activision segment revenue grew 28% year-over-year in the first quarter. Broad-based growth across Call of Duty drove segment operating income to more than triple the year-ago level.

• Building on the record-setting launch of Call of Duty: Modern WarfareTM II last October, premium Call of Duty game sales in the first quarter were significantly higher than in the year-ago quarter. Activision’s expanded teams are delivering substantial post-launch content for both the premium game and the free-to-play WarzoneTM 2.0 experience. New content, modes and gameplay enhancements have had a positive impact on engagement, and Activision is planning more compelling live services for the coming months.

• Call of Duty in-game net bookings on console and PC grew strongly year-over-year in the first quarter. Call of Duty Mobile net bookings also grew year-over-year, driven by enhancements to the player experience and live operations.

• Activision’s teams are working hard on the next full annual premium release in the blockbuster series and Call of Duty: Warzone MobileTM, both slated for later this year. On June 20, Activision will launch Crash Team Rumble, a team-based brawler featuring characters from the beloved Crash universe, on Xbox and PlayStation.

Blizzard

• Blizzard segment revenue increased 62% year-over-year in the first quarter, with each of Warcraft, Overwatch and Diablo contributing to growth. Segment operating income was broadly stable year-over-year, reflecting higher development and marketing costs, including launch investment ahead of the second quarter release of Diablo IV.

• The Overwatch and World of Warcraft teams delivered substantial in-game content and live operations to excite and sustain their communities following major product launches in the fourth quarter. Following the November release of the DragonflightTM expansion for the Modern game, our World of Warcraft team is delivering more content faster than ever before, and subscriber retention in the West is higher than at the equivalent stage of recent Modern expansions. While Overwatch engagement moderated versus the Overwatch 2 launch quarter, hours played were approximately twice the levels seen prior to the release of the free-to-play experience. Season 3, which launched in February, drove strong retention and consistent player investment versus the prior season.

• Diablo ImmortalTM on mobile and PC also contributed to Blizzard’s first quarter net bookings growth, with the game experiencing stable trends across engagement, retention and player investment. Elsewhere on mobile, Warcraft: Arclight RumbleTM, an action strategy game internally-developed at Blizzard, continues to progress well through regional testing.

• Diablo IV, the next major installment in the genre-defining series, will launch on PC and console on June 6. Public testing of the game in March saw very high engagement and positive feedback, and pre-sales are strong. This ambitious title will serve as the launch for a compelling live service, with regular seasons and story-driven expansions planned to drive engagement for many years to come.

King

• In the quarter that marked its 20th anniversary, King continues to deliver excellent financial performance, reflecting strong execution and deep expertise in optimizing live operations and user acquisition. First quarter segment revenue grew 8% year-over-year, equivalent to low double-digit growth on a constant currency basisE. King’s first quarter segment operating income was little changed year-over-year due to increased investment in marketing, which is expected to contribute to operating income growth in future quarters.

• In-game net bookings increased 11% year-over-year, driven by the Candy Crush franchise. King continues to launch and optimize new seasonal content, features and events to engage its community, and attract lapsed and new players. The March 23 launch of the latest Candy Crush All Stars tournament, where players compete in Candy Crush SagaTM for a chance to appear in the live finals, drove incremental growth in installs and player investment at the end of the first quarter and into April.

• Candy Crush payer numbers again grew year-over-year, and Candy Crush was the top-grossing game franchise in the U.S. app stores1 for the 23rd quarter in a row.

• Amid a weak macro environment for digital advertising, King advertising revenue fell due to declines in business with partner networks. King continues to invest in innovative ad product offerings to fuel further growth in its direct business with brand advertisers.

• King is already starting to see benefits from last June’s acquisition of Peltarion, an AI company. Peltarion’s technology is helping King to accelerate the production and testing of live operations and to offer more relevant game content to players, with the acquisition set to deliver a meaningful financial benefit in its first full year.

Balance Sheet

• Cash and short-term investments at the end of the first quarter stood at $12.6 billion, and Activision Blizzard ended the quarter with a net cashF position of approximately $8.9 billion.

1 Based on data.ai Intelligence

2 These corporate websites and social media channels, and the contents thereof, are not incorporated by reference into this press release nor deemed filed with the U.S. Securities and Exchange Commission.

A Net effect of accounting treatment from revenue deferrals on certain of our online-enabled products. Since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games and then recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, along with, for the purposes of EPS, the related cost of revenues deferrals treatment and the related tax impacts. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.

B Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others, and is equal to net revenues excluding the impact from deferrals.

C In-game net bookings primarily includes the net amount of microtransactions and downloadable content sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.

D Monthly Active User (“MAU”) Definition: We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.

E Year-over-year growth on a constant currency basis is calculated by translating current quarter local currency amounts to U.S. dollars based on prior period exchange rates. These amounts are compared to the prior period to derive constant-currency year-over-year performance. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of currency rate fluctuations.

• Total net bookings increased by 25% year-over-year for the first quarter of 2023. On a constant currency basis, total net bookings increased 29% year-over-year for the first quarter of 2023 as currency rate changes negatively impacted year-over-year growth in the quarter by 4 percentage points.
• Activision segment net revenues grew by 28% year-over-year, Blizzard segment net revenues grew by 62%, and King segment net revenues grew by 8% for the first quarter of 2023. On a constant currency year-over-year basis, Activision segment net revenue grew 30%, Blizzard segment net revenue grew 67%, and King segment net revenue grew 11% for the first quarter of 2023, as currency rate changes negatively impacted Activision segment net revenue year-over-growth by 2 percentage points, Blizzard segment net revenue year-over-growth by 5 percentage points, and King segment net revenue year-over-growth by 3 percentage points.

F Net cash is defined as cash and cash equivalents ($9.2B as of March 31, 2023) and short-term investments ($3.4B as of March 31, 2023) minus gross debt ($3.7B as of March 31, 2023).

Non-GAAP Financial Measures: As a supplement to our financial measures presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

Activision Blizzard provides net income (loss), earnings (loss) per share, and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. When relevant, the company also provides constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of currency rate fluctuations. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation, and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation). The non-GAAP financial measures exclude the following items, as applicable in any given reporting period and our outlook:

• expenses related to share-based compensation, including liability awards accounted for under ASC 718;
• the amortization of intangibles from purchase price accounting;
• fees and other expenses related to mergers and acquisitions, including related debt financings, and refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs;
• restructuring and related charges;
• expenses related to the wind down of our partnership with NetEase in China in regards to licenses covering the publication of several Blizzard titles which expired in January 2023;
• other non-cash charges from reclassification of certain cumulative translation adjustments into earnings as required by GAAP;
• the income tax adjustments associated with any of the above items (tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results); and
• significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and other unusual or unique tax-related items and activities.

Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.