Friday, May 6, 2016

An Analysis of Blizzard's First Quarter Earnings Release

So this quarter's earnings release was probably more notable for the changes in format than for the specific information about Warcraft that was available.  Most notably, we no longer have specific revenue information related to World of Warcraft being publicly disclosed by Activision-Blizzard ("ATVI").

So here is the table from the Q4 earnings release where they break-out the World of Warcraft information:



























And here is that same schedule now.  Note the footnote at the bottom where they explain that the stuff that used to be broken out and separately identified as World of Warcraft has now been lumped in with all the other PC based stuff.























So this is coming on the heels of separate subscriber numbers no longer being disclosed after Q3 of last year.

But here is something we are getting that is new this time around, and that is overall Monthly Active Users for Blizzard as a whole.  Below is a really cool slide from Activision-Blizzard's earnings call presentation that talks about their total audience reach across all three segments.


So we have totals for Blizzard now, which was 26 million monthly active users, and was the fastest growing of ATVI's segments, growing 23% year over year.  But keep in mind, that includes all of Blizzard's franchises - Warcraft, Diablo, Starcraft, Hearthstone and Heroes of the Storm (and maybe even Overwatch - they didn't really say).  While it was the fastest growing, it's really interesting to see how much smaller it is than Activision and King on a relative basis.

So, now for the numbers.  For ATVI as a whole, they had a strong quarter.  GAAP revenues increased about 14% for the quarter to $1.455 billion and non-GAAP revenue increased 29% for the quarter to $908 million.  Note that Q1 is typically a very slow time for the Company from a non-GAAP standpoint, particular without any notable new releases typically occuring during that time.

For Blizzard specifically, their non-GAAP revenue story was not nearly as good, declining 16% to $294 million for the quarter.  So while their monthly active users are up 23% year over year, that's not necessarily translating the revenue increases, at least at this point.

In terms of actual operating income, the decline at Blizzard was even larger, with a drop of 38% to $86 million for the quarter compared to $139 million in 2016.  There should be more detail explaining these particular changes in their Form 10-Q filing with the Securities and Exchange Commission, but unlike previous quarters, they didn't file their 10-Q on the same day as their earnings release.

From a cash flow standpoint, we'll also have to wait until that 10-Q gets filed to see the details on their cash flow for the quarter, but they did disclose on the call that they generated something north of $300 million of operating cash flow for the quarter, which would be a significant improvement over the $209 million of operating cash flow from the first quarter of last year.

As you may recall from previous posts, they took on an additional $2.3 billion of new debt in connection with the King acquisition, and they also disclosed on the call that they had already repaid $500 million of that new debt.  Lastly, they also disclosed that they had received approval from their board to repay an additional $1 billion of debt over the rest of the year.  So as of 3/31, the Company had $2.9 billion of cash on hand, compared to $5.9 billion of gross debt, or net debt of around $3 billion.  This compares to $1.3 billion of net cash (total cash minus total debt) on hand at year-end.

Only planning to use $1 billion of the $2.9 billion of cash that they have currently on hand to repay debt over the remainder of the year might create some interesting speculation around what plans they might have for that remaining $1.9 billion, plus the cash they will generate over the rest of the year.

Friday, April 29, 2016

Stop Building New Garrisons Now!

So I ended up having a little bit of an exchange on social media yesterday about when the break-even point might come with respect to constructing new garrisons.  I had done a little bit of analysis last year to determine how long it took to break-even on a garrison in pure gold terms, but that analysis assumed an unlimited amount of time.  (And by the way, as a quick refresher, that analysis showed that it took 21 days of operating with a fully built out garrison and slate of followers to recover the approximately 10,500g investment for fully building it out).

So just to level set, here is what I'm generally looking at in terms of a fully stocked garrison for gold-making.  It is a level 3 garrison, a level 3 inn (for the treasure hunter missions) a level 3 salvage yard and a level 1 trading post.  It is also a full slate of 20 followers with the ones with specific i-level requirements for particular gold missions geared to those points.  Note that you could increase that to 25 followers with a level 3 barracks, but the cost of doing that in both gold and garrison resources would be higher, and it's not going to change the answer at this point.  The cost of building that out is approximately 10,500g and 3,550 garrison resources.

Now, if I'm leveling a toon from scratch, I am typically finishing up that process with around 1,000 garrison resources (that assumes that I'm using them to buy experience potions from my garrison quartermaster as I go).

So now it comes down to how long it would potentially take me to get to that break-even point.  One of the gating items is how long it would actually take to accumulate the garrison resources to fully build out the garrison.  At 2,550 net garrison resources needed, and an accumulation rate of 144 resources per day, that works out to 17 days, or just slightly under 3 weeks.  You could speed this up by building a lumber yard, but this would take quite a bit of extra time every day on that character to go out and collect the lumber, and at this point, that's not a time investment I'm willing to make.  You can of course feel free to choose differently.  In my case, my next max level character is going to be my 23rd 100, so I've got less willingness to invest additional time in those alts.

So between building, and then accumulating gold, that brings us to 6 weeks total. The real gating item from a time perspective is accumulating the followers.  I am typically finishing the leveling process with somewhere between 9 and 10 followers, just from working through the typical leveling process.  I am not generally going out of my way while leveling to collect specific open world followers because generally those followers do not have the traits that I'm looking for - which are scavenging and treasure hunting.

So using my inn to recruit one follower per week, it is going to take me at least 10 weeks to pull together the full slate of treasure hunters.  Now the three week time frame to accumulate the garrison resources to fully build out your garrison runs simultaneously with this, and you will be accumulating some gold while you are recruiting those followers, but not enough to make a significant dent in the break-even calculation.  It will likely also take you at least a week to fully level those 20 followers to max once you have your full slate of 20 collected, unless you're doing nothing but garrison mission for this particular toon.

So if I assume it takes 10 weeks to accumulate the followers and then 3 weeks to break-even on the gold (assuming the gold accumulated while recruiting helps to offset the additional time needed to level those followers to max), you're at a minimum of 13 weeks to break-even, which from today, puts you at July 29th.  So if you think 7.0 is going to drop on or before July 29th, it is likely too late to break even on a new maxed out garrison at this point.

What I would recommend instead, is to go ahead and upgrade your garrison to level 2, and build out a level 2 salvage yard, a level 1 trading post and a level 2 inn (or conversely, don't worry about the inn and just head out into the world and grab some followers), continue to accumulate garrison resources to use at the trading post and sell, and then do whatever base gold missions you can.  The cost of doing that is only 2,800 gold with the level 2 inn and only 1,350 gold if you ignore the inn, so is much more likely to be profitable over the next few months until launch.


Tuesday, April 26, 2016

Ding! Level 100 #22

So I just hit level 100 on the alliance warrior, giving me my 22nd max level toon.  The sad thing is, I really used to enjoy leveling and playing as an arms warrior, but that was definitely not my favorite this time.  He seemed fairly squishy the entire way.  Not a particularly fun leveling process.

Next up is going to be the alliance monk, who is currently sitting at level 61 in Hellfire Pensinsula somewhere.  I expect with the monk xp boosts, this one should be really fast.

After that, I will likely start working on a third hunter if I still have time, and maybe then a fire mage.

My total leveling time on the warrior was 2 days, 10 hours and 16 minutes, which is about the same as the last couple of toons that I've finished.


Tuesday, April 19, 2016

Not Quite There Yet

A week long business trip to Europe delayed my plans on my Alliance Warrior, but he's back in the swing of things, and just started working his way through Gorgrond today.  That was my 22nd toon to run through the Tanaan Jungle starting experience.  Ugh.

It's a busy week this week, so not sure I'll be able to finish him up, but should be in relatively short order.  Then it'll be time to finish up the monk and finally nail down the goal of a level 100 of each class for each faction (plus one extra warlock, and maybe an extra hunter if I have time)

I'm still doing a little bit of the garrison thing, but not with the same level of urgency that I have in the past.

I was excited to see a release date for Legion as well.  August 30th will be here before you know it, so I've now got a fairly limited amount of time to get these last few toons done.

Wednesday, March 30, 2016

A Return to Garrisons and Leveling

So as I foresaw in my last blog post, I think I've finally reached the point where I've lost interest in SWTOR again, so I've started to pick up my garrison activities and leveling in a bit more earnest now.

I've got two toons to finish up in order to reach the stated goal of having a max level toon of each class for each faction.  My alliance warrior is current at level 87 and working his way through Pandaria.  I've then got a pandaren monk that is sitting in Hellfire Peninsula at level 61.

I've gone back to looking working on my garrison's more regularly to keep the flow of gold coming.  All 11 of my characters on the Horde side have fully outfitted garrisons with all their followers at 675 and all are essentially always maxed on garrison resources as well so they can continue to use the Trading Post to make lots and lots of money.

With those 11 toons, I tend to average somewhere around 6-10K gold per day, so if Legion goes live around the end of September as expected, I should be able to conservatively add another million gold to the pile by then.

I've also started to do the same thing on the alliance side.  At this point, I've only got 6 toons that are fully equipped, 3 that I'm working on and then the two that are still leveling, so needless to say, things aren't nearly as lucrative alliance side for me, but I'm still amassing a pretty reasonable cash horde on the alliance side as well (see what I did there?)

I'm hoping to finish up the alliance warrior sometime in the next week or two and then focus on the monk.

Cheers


Tuesday, March 15, 2016

Slowing Down on Leveling Alts

So I've really slowed down on leveling all of the various alts.  Without any new content coming out of Blizzard any time real soon, I'm not in a big rush to get a few more alts to max level, only to then wonder what the heck I'm going to do with all of those alts once Legion drops.

I've also actually gotten to the point that I feel like I've accumulated enough gold, so don't even feel compelled to keep logging in for the regular garrison chores.  I'm still accumulating some on my alliance server, so when I do these days, it's typically to just work through the garrison stuff on the 9 max level toons that I have sitting there.

I still have both my alliance warrior and monk to finish up in order to have a different character from each class from each faction at max level.  Plus I've got my 3rd warlock sitting on yet another server.

Right now I've been playing a fair amount of SWTOR, just for the fresh content and storylines, but I expect I may exhaust the solo play end of that in another month or two, which will likely then give me some time to finish up those last few alts before Legion.

Or it's possible that I'll get tired of SWTOR like I did before, although they've really made a lot of improvements to the questing experience and storyline that may keep me engaged for a while.

So that's the update on the Warcraft front for now.  Not much to talk about, because there is really not much going on.  Such is life in the World of Warcraft these days.




Thursday, February 18, 2016

Analysis of the Q4 Earnings Release

So instead of my normal blog-based analysis of the Q4 Earnings Release, this quarter I did it in podcast format with Alt from Alternative-Chat and Mick Montgomery from The Starting Zone podcast was kind enough to put it up as an episode of The Starting Zone.

So a big thank you to both Alt and Mick.  And here is the link to the podcast analysis of Activision-Blizzard's Q4 Earnings Release:

Starting Zone Podcast - Q4 Earnings Release