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Old 11-13-2019, 09:27 PM
Kyalin V. Raintree Kyalin V. Raintree is offline

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Join Date: Nov 2017
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So, I've looked at the third quarter 10Q. Here are my thoughts:

3Q 10Q:
2Q 10Q:

Note 13 provides us with some of the most useful information for our purposes in the 10-Q. Not only does it break out results by segment, thereby isolating Blizzard, it also shows us what net income looks like before and after changes in deferred revenue. (See my prior conversations on deferred revenue for that.)

What I've done below is compare the third quarter with the second quarter to try and pick out any significant changes. This data consists only of Blizzard-specific data, and doesn't include Activision or King.:

By Distribution Channel by Kyalin Raintree, on Flickr
By Region by Kyalin Raintree, on Flickr
By Platform by Kyalin Raintree, on Flickr

I think the platform data is the most interesting, because whereas there are only very slight changes in most of the data, we see that PC segment net revenues are a little under 10% higher than they were last quarter, while console and mobile (read: Where Overwatch and Hearthstone live) are down. Console net revenues are down pretty heavily in fact (although this is partially cushioned by 'other', which includes distribution and esports). Given all of this, while I hesitate to use platform data as a proxy for whether we're talking about World of Warcraft or not, it's a pretty good indicator here of just what impact Classic is having.

Another notable, but easy-to-miss fluctuation is the positive change in retail channels over the quarter, which means that people are going to the store and picking boxes up from the shelf as opposed to a previously unsubscribed player reupping their subscription so that they can play classic. Warcraft is of course not the only product available for boxed sales, and there still are people who buy game time from physical packs and cards, but on balance, this is probably positive news for WoW.

I wanted to lead with that because I've been focusing a lot on MAUs recently. As a reminder, as of March 31, 2018, Blizzard had 38 million of them (this being within the BfA preorder season). As of June and September 30, 2018, this figure was 37. Then in the fourth quarter, primarily due to WoW, the figure dropped to 35. In the first quarter of 2019, it dipped again to 32 - this time due to Hearthstone and Overwatch, and held steady at 32 in the second quarter.

I want to again remind people that these narrative descriptions are concerned with material movements, and we see an example of what it means when one moves up and the other one moves down. This quarter, MAUs increased to 33 million, as noted in the 10Q on page 43:

"The slight increase in Blizzard’s average MAUs is due to an increase in average MAUs for World of Warcraft, largely offset by lower average MAUs for Hearthstone."

This would seem to support the idea that yes, Classic spurred the largest increase in subscriber counts in franchise history. That being said, I do want to point out to the continued existence of deferred revenue as an item that needs to be subtracted FROM net revenues per GAAP in order to get to segment net revenues. That means that money is still being amortized out of deferred revenues, net, rather than being added to it - which is a bit of a grey lining to this particular white cloud.
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