Activision Blizzard made a bet that Destiny, a new sci-fi video game that blends shooter games with multiplayer titles played exclusively over the Internet, would prove a success. And now that bet is starting to pay off.
The game maker and publisher reported fiscal third-quarter earnings Tuesday, and sales and profit exceeded Wall Street's estimates. Sales rose 78 percent from a year ago, while profits per share nearly tripled, each after adjustments for deferred revenue and other items. Activision's profits were more than 76 percent higher than analysts had expected.
The news bodes well for the video game industry, which this month celebrates the one-year anniversary of a newer generation of console hardware, ahead of the pivotal holiday shopping season. Activision competitors Electronic Arts and Take-Two Interactive Software have both seen strong sales this year, largely pushed by purchases over the Internet, as players begin to see the benefits of upgrading their game-playing devices. Industry executives say video game software sales, which fell 35 percent year-over-year in September according to NPD Group, are now on the rebound.
Activision says more than two thirds of its sales last quarter came through online purchases, including both full game downloads and additional game content. With Destiny -- which has two episodic expansions in the works -- now a fixture in its library, the company is charting a path away from reliance on its traditional brands.
Activision's success has long rested on the strength of two games: World of Warcraft, an Internet-connected fantasy game, and Call of Duty, a war simulation series that's one of the most successful franchises in the industry. But the company is shifting strategies as old series begin to lose steam and gamers look to newer titles. Last year's Call of Duty installment, called Ghosts, received mixed reviews and failed to sell as well as 2012's Call of Duty Black Ops II, the franchise's best-performing title to date.
The company has high hopes for its next Call of Duty game, called Advanced Warfare, which it released Tuesday.
Yet while Activision is still pumping out new versions of its established franchises, it's also trying its hand at new games. One of them is called Skylanders, a series that connects video games with real-world toys. It's becoming a bigger part of the company's business, pulling in $2 billion in sales.
Another recent investment is Destiny, a new game built by the company that created Halo, one of the most successful game franchises.
Earlier this year CEO Bobby Kotick said Destiny would be "the largest new intellectual property launch in video game history." The company pledged to invest more than $500 million over the course of 10 years, making it one of the most expensive games ever. Activision hammered out that decade-long deal with Bungie, the maker of the Halo sci-fi game series, in the hopes that Destiny can become another billion-dollar franchise.
Activision says Destiny became the best-selling new franchise when it launched in September. Now Activision says it counted 9.5 million people who have registered to play.
Kotick said so far the game has performed "beyond our expectations." He attributed the franchise's success to its sci-fi setting, something Activision's Call of Duty franchise hadn't tackled because of its modern-war settings. "I think they did a brilliant job," he added.
The company is also in the earliest stages of planning a Destiny sequel. "Work has also begun on future expansion packs as well as on our next full game release," Activision Publishing CEO Eric Hirshberg said Tuesday during the company's earnings call.
Meanwhile, Activision said there's been an uptick in the number of people playing World of Warcraft. There are now more than 7.4 million people playing the game, up from 6.8 million last quarter. The game has still lost subscribers so far this year, but a new installment called Warlords of Draenor, being released next week, could help reverse that trend. The company says it's already counted more than 1.5 million preorders ahead of the release.
Activision shares were up 3.26 percent, or 65 cents, to $20.63 a share in after-hours trading, after closing down 1.35 percent Tuesday. The company's stock is up this year, peaking at $24 a share in early September ahead of Destiny's release.
When adjusted for items like stock-based compensation and deferred revenue, profit was 23 cents a share on sales of $1.17 billion. That beat the estimates of analysts surveyed by Thomson Reuters, who were looking for 13 cents a share on sales of $1.01 billion.
For the fourth fiscal quarter, which ends December 14 and includes the holiday shopping season, Activision said it anticipates profit of 86 cents a share on sales of $2.2 billion, after adjustments. Analysts were expecting better, with estimates for fiscal fourth-quarter earnings of 94 cents a share on sales of $2.4 billion.