Activision Blizzard Inc. (NASDAQ:ATVI)

The financial data reveal several key trends in the company's intangible assets over the five-year period ending December 31, 2022.

Internally-developed franchises and developed software

Values for internally-developed franchises remained constant at $1,154 million from 2018 through 2021, with no data available for 2022. Developed software was steady at $601 million in 2018 and 2019, but data is missing from 2020 onward, indicating potential discontinuation or reclassification.

Customer base

This asset was reported only in 2018 at $617 million and not reported in subsequent years, suggesting it may have been fully amortized, sold, or otherwise removed from the balance sheet.

Trade names and other intangible assets

Trade names and other intangible assets showed a gradual increase from $73 million in 2018-2020 to $80 million in 2021, and $90 million in 2022, indicating accumulation or revaluation of these assets over time.

Acquired definite-lived intangible assets, gross carrying amount

There was a significant declining trend in these assets, dropping from $2,445 million in 2018 to just $90 million in 2022. This reflects ongoing amortization, asset disposals, or impairment during the period.

Accumulated amortization

Accumulated amortization followed a similar downward pattern moving from -$2,143 million in 2018 to -$81 million in 2022. The reduction in the negative balance correlates with the decrease in the gross carrying amount, indicating continuous amortization over time.

Acquired definite-lived intangible assets, net carrying amount

The net carrying amount of acquired definite-lived intangible assets decreased sharply from $302 million in 2018 to $9 million in 2022, underscoring accelerated amortization and asset reduction.

Acquired indefinite-lived intangible assets and trade names

Acquired indefinite-lived intangible assets, including the Activision trademark and acquired trade names, remained stable throughout the period. The Activision trademark held steady at $386 million, and acquired trade names at $47 million annually, reflecting these assets were not amortized and maintained a consistent valuation.

Intangible assets, net

Net intangible assets decreased from $735 million in 2018 to $442 million in 2022, showing an overall decline due to the sharp reduction in definite-lived assets partially offset by increases in trade names and other.

Goodwill

Goodwill remained relatively stable, with a slight increase from $9,762 million in 2018 to $9,929 million in 2022. This minor change suggests no major impairment or write-downs during the period.

Intangible assets, net and goodwill combined

The combined value of intangible assets net and goodwill showed modest fluctuations, starting at $10,497 million in 2018 and ending slightly lower at $10,371 million in 2022, indicating overall asset stability despite the reduction in certain intangible components.

In summary, the company exhibited a clear pattern of amortizing acquired definite-lived intangible assets, resulting in significant reductions in those assets’ carrying amounts and associated amortization balances. Conversely, indefinite-lived intangible assets such as trademarks and trade names remained stable, contributing to the consistency in total goodwill and combined intangible assets. The data suggest prudent asset management with no indications of impairment, but a strategic divestment or natural expiration of definite-lived assets over this timeframe.

Reported Total Assets

The reported total assets have shown a consistent upward trajectory over the five-year period. Starting from 17,835 million USD at the end of 2018, the assets increased annually, reaching 27,383 million USD by the end of 2022. This represents a significant growth, reflecting the company's expanding asset base.

Adjusted Total Assets

Adjusted total assets, which exclude goodwill, also exhibit a steady increase. The figures began at 8,073 million USD in 2018 and grew to 17,454 million USD in 2022. Although lower than the reported total assets, the adjusted assets more than doubled during this timeframe, indicating considerable growth in tangible and non-goodwill intangible assets.

Reported Shareholders’ Equity

Reported shareholders’ equity mirrored the growth in total assets, rising consistently from 11,357 million USD in 2018 to 19,243 million USD in 2022. This increasing equity suggests the company has been successful in retaining earnings or raising capital, thereby strengthening its financial position.

Adjusted Shareholders’ Equity

The adjusted shareholders' equity, which removes goodwill, experienced a pronounced increase from 1,595 million USD in 2018 to 9,314 million USD in 2022. The growth rate in adjusted equity is particularly strong, indicating that the tangible net assets substantially improved over the analyzed period.

Comparative Analysis

The difference between reported and adjusted figures highlights the material impact of goodwill on the company’s reported financial position. While both reported and adjusted figures are increasing, the reported totals are roughly double the adjusted figures in terms of total assets and much higher for shareholders’ equity. This suggests that goodwill forms a significant portion of the company’s reported assets and equity.

Overall Trends

The data implies that the company has experienced steady growth in both its asset base and equity capital over the five years. The consistent upward trends in both reported and adjusted figures indicate ongoing operational expansion and asset accumulation. Moreover, the substantial increases in adjusted equity point to strengthening underlying financial fundamentals beyond goodwill adjustments.

Total Asset Turnover

The reported total asset turnover ratio shows a consistent decline over the period, decreasing from 0.42 in 2018 to 0.27 in 2022. This indicates that the company’s efficiency in using its assets to generate sales has weakened. The adjusted total asset turnover, which accounts for goodwill, also follows a downward trend, falling from 0.93 in 2018 to 0.43 in 2022. Although the adjusted figures are higher than the reported ones, the similar declining pattern suggests deteriorating asset utilization performance irrespective of goodwill adjustments.

Financial Leverage

The reported financial leverage ratio remains relatively stable, slightly decreasing from 1.57 in 2018 to 1.42 in 2022. This denotes a modest reduction in the company's use of debt relative to equity. However, the adjusted financial leverage shows a substantial reduction from 5.06 in 2018 to 1.87 in 2022, indicating that when goodwill is considered, leverage has decreased more significantly. This suggests that prior periods may have been influenced by substantial goodwill on the balance sheet, inflating the leverage calculation before adjustment.

Return on Equity (ROE)

Reported ROE exhibits volatility with a peak of 15.96% in 2018 and a gradual decline to 7.86% in 2022. The trend indicates a weakening ability to generate profits from shareholders’ equity over time. Adjusted ROE, which excludes the impact of goodwill, starts markedly higher at 113.67% in 2018, then declines steadily to 16.24% in 2022. Despite the decrease, adjusted ROE remains above the reported figure, reflecting that goodwill adjustments reveal a more efficient use of equity in earlier years but showing similar downtrend pressures in later years.

Return on Assets (ROA)

The reported ROA mirrors the pattern of ROE, decreasing from 10.17% in 2018 to 5.53% in 2022, representing a decline in overall asset profitability. The adjusted ROA figures are consistently higher than the reported ones, starting at 22.46% in 2018 and dropping to 8.67% in 2022. This suggests that when intangible assets such as goodwill are removed, the company’s assets appear more efficient at generating returns, though this efficiency is still declining over the analyzed period.

Summary of Trends

Across all metrics, the company shows a clear trend of declining operational efficiency and profitability from 2018 to 2022. Both reported and adjusted total asset turnover ratios have declined, indicating a reduced capacity to generate sales from assets. Financial leverage, after goodwill adjustment, has decreased significantly, suggesting a reduction in debt reliance or equity base changes. Profitability ratios, ROE and ROA, have weakened substantially in both reported and adjusted forms, reflecting reduced returns for investors and overall asset utilization challenges. The adjusted metrics, while consistently higher, confirm the trend of deteriorating performance but highlight the substantial impact goodwill has on financial statement interpretation.

The analysis of the data over the five-year period reveals notable trends in both reported and adjusted financial figures. Reported total assets increased steadily each year, rising from 17,835 million US dollars at the end of 2018 to 27,383 million US dollars by the end of 2022, representing a significant expansion in asset base. Similarly, adjusted total assets, which likely exclude goodwill or other intangible adjustments, also showed growth, increasing from 8,073 million US dollars in 2018 to 17,454 million US dollars in 2022. This indicates that even after adjustments, the company's asset base nearly doubled within five years.

Reported Total Asset Turnover

This ratio, which measures the efficiency in generating revenue from assets, demonstrated a declining trend over the period. Starting at 0.42 in 2018, it dropped to 0.33 in 2019, then slightly improved to 0.35 during both 2020 and 2021 before falling further to 0.27 in 2022. This declining movement suggests a decreasing efficiency or effectiveness in utilizing total assets to generate revenue, particularly highlighted by the significant dip in 2022.

Adjusted Total Asset Turnover

The adjusted total asset turnover, presumably calculated excluding goodwill or other adjustments, mirrored a downward trend but from a higher initial level. The ratio began at 0.93 in 2018 and fell progressively each year to 0.43 in 2022. Despite the decline, it remained consistently above the reported total asset turnover for each corresponding year. The steady decrease signals that even when adjusted for non-operational assets, the company's asset utilization efficiency declined markedly over the five-year span.

Overall, while the company expanded both its reported and adjusted asset bases substantially, its ability to generate revenue from these assets diminished over the period. This divergence might warrant further investigation into operational efficiency, asset management practices, and revenue growth strategies to identify underlying causes and potential areas for improvement.

The financial data reveals distinct trends when comparing reported figures with goodwill-adjusted amounts over the five-year period ending December 31, 2022.

Total Assets

Reported total assets increased steadily from $17,835 million in 2018 to $27,383 million in 2022, reflecting a compound upward trend. Adjusted total assets, which exclude goodwill, also rose consistently from $8,073 million in 2018 to $17,454 million in 2022. Notably, the adjusted asset base is significantly lower than the reported amounts, indicating a substantial goodwill component in the reported assets that has been excluded in the adjusted figures.

Shareholders’ Equity

Reported shareholders’ equity followed a robust upward trajectory, rising from $11,357 million in 2018 to $19,243 million in 2022. Adjusted shareholders’ equity, excluding goodwill, grew from a much lower base of $1,595 million in 2018 to $9,314 million in 2022. The growth rate in adjusted equity is quite pronounced, indicating improvement in underlying net asset value after removing intangible goodwill.

Financial Leverage

The reported financial leverage ratio demonstrated a slight decline over the period, decreasing from 1.57 in 2018 to 1.42 in 2022. This trend suggests modest deleveraging or an improved equity cushion relative to total assets on a reported basis. In contrast, the adjusted financial leverage ratio shows a more marked reduction, from 5.06 in 2018 to 1.87 in 2022, implying a significant strengthening of the capital structure when goodwill is excluded. The decline in adjusted leverage reflects the steady increase in adjusted equity relative to adjusted assets, thereby improving the company's financial stability from a tangible asset perspective.

Overall, the data indicates ongoing asset growth and strengthening equity positions, both on a reported and adjusted basis. The consistent improvement in adjusted financial leverage underscores enhanced financial soundness when intangible goodwill is removed from the balance sheet. This suggests the company has been successful in increasing its tangible net assets and reducing reliance on goodwill over the analyzed period.

The financial data indicates a general upward trend in both reported and adjusted shareholders' equity from 2018 to 2022. Reported shareholders' equity increased steadily from US$11,357 million in 2018 to US$19,243 million in 2022, demonstrating consistent growth over the five-year period. Adjusted shareholders' equity experienced a much more significant relative increase, rising from US$1,595 million in 2018 to US$9,314 million in 2022, indicating a strong enhancement in equity values when adjustments related to goodwill are considered.

Return on Equity (ROE) metrics portray a contrasting pattern in terms of stability and magnitude. Reported ROE, while fluctuating over the years, shows a declining trend from 15.96% in 2018 to 7.86% in 2022. The highest reported ROE was observed in 2018, and after a dip in 2019, there was a recovery through 2021 before a significant decrease in 2022.

Adjusted ROE, which likely accounts for the removal of goodwill effects, consistently declines throughout the period, starting from an exceptionally high 113.67% in 2018 and falling sharply to 16.24% in 2022. Although the adjusted ROE remains higher than the reported ROE, the pronounced downward trend suggests that while the base equity has increased, the efficiency in generating returns relative to the adjusted equity base has been reducing over the years.

Overall, the data reflects growth in equity levels, both reported and adjusted, but highlights a declining efficiency in utilizing that equity to generate profits, particularly when adjustments are made for goodwill. This could imply increasing challenges in maintaining high returns as the company's equity base expands.

Shareholders’ Equity

Reported equity rose consistently each year from US$11,357 million in 2018 to US$19,243 million in 2022.

Adjusted equity exhibited substantial growth, increasing almost sixfold from US$1,595 million in 2018 to US$9,314 million in 2022.

Return on Equity (ROE)

Reported ROE showed volatility with a peak at 15.96% in 2018, a dip to 11.74% in 2019, recovery through 2021 reaching 15.34%, then decreased markedly to 7.86% in 2022.

Adjusted ROE declined continuously from an exceptionally high 113.67% in 2018 to 16.24% in 2022, indicating decreasing return generation efficiency relative to adjusted equity.

The financial data reveals multiple trends in total assets and return on assets (ROA) over the five-year period ending in 2022. Both reported and adjusted total assets show a steady increase, indicating growth in the company's resource base.

Total Assets

Reported total assets increased from $17,835 million in 2018 to $27,383 million in 2022, representing a consistent upward trend. Adjusted total assets, which exclude goodwill, also rose steadily from $8,073 million to $17,454 million in the same period. This suggests that while the company is expanding its asset base, a significant portion of the growth is related to goodwill and other intangible assets.

Return on Assets (ROA)

The reported ROA shows more fluctuation. It began at 10.17% in 2018, decreased to a low of 7.57% in 2019, then improved to 10.77% in 2021 before dropping sharply to 5.53% in 2022. This indicates variability in profitability relative to the total reported assets.

Adjusted ROA, which is calculated using adjusted total assets, follows a similar pattern but at higher levels. It starts at 22.46% in 2018, drops to 14.91% in 2019, rises to a peak of 17.69% in 2021, and declines to 8.67% in 2022. The adjusted ROA consistently exceeds the reported ROA, reflecting the impact of excluding goodwill and emphasizing the operational efficiency of the tangible asset base.

Insights on Profitability and Asset Quality

The divergence between reported and adjusted ROA ratios highlights the potential dilution effect of goodwill on asset returns. The higher adjusted ROA suggests that core operating assets generate stronger returns than when intangible assets are included. However, the decline in both ROA measures in 2022 signals potential challenges in maintaining profitability relative to asset size.

The continuous growth in both reported and adjusted total assets alongside fluctuating ROA suggests the company is expanding but facing pressures on asset utilization or profitability efficiency in recent periods.