Activision Blizzard Inc. (NASDAQ:ATVI)

The analysis of current and deferred income tax expenses over the five-year period reveals several notable trends and fluctuations.

Current Income Tax Expense

The current income tax expense displayed a general upward trend from 2018 to 2020, increasing significantly from 37 million USD in 2018 to a peak of 516 million USD in 2020. Subsequently, it decreased to 453 million USD in 2021 and further to 399 million USD in 2022. This pattern suggests a period of escalating taxable income or adjustments resulting in higher current tax liabilities until 2020, followed by a reduction in subsequent years.

Deferred Income Tax Expense

Deferred income tax expenses showed considerable volatility across the years. Starting at a positive 27 million USD in 2018, the figure plunged into significant negative territory in 2019 (-353 million USD) and remained negative in 2020 (-97 million USD). In 2021, deferred tax liabilities turned slightly positive again at 12 million USD before dropping sharply to -168 million USD in 2022. This fluctuation points to substantial changes in timing differences and tax asset or liability adjustments, with frequent reversals impacting deferred tax expenses.

Total Income Tax Expense

The total income tax expense, combining current and deferred components, generally increased from 64 million USD in 2018 to a peak of 465 million USD in 2021, reflecting the combined effect of rising current tax costs and fluctuating deferred taxes. In 2022, the total tax expense decreased to 231 million USD, a notable decline compared to the previous two years. This pattern indicates that while current tax expenses remained relatively high, adverse deferred tax effects, especially negative amounts, moderated the total tax expense.

Overall, the data shows that the company experienced increased current tax obligations through 2020, with deferred tax expenses exhibiting significant variability and negative spikes. The combined income tax expense peaked in 2021 before declining markedly in 2022, suggesting changes in the company's taxable income, tax planning strategies, or timing differences in recognizing tax effects during these years.

The analysis of the data reveals several significant trends and fluctuations in the tax-related financial metrics over the five-year period ending December 31, 2022.

U.S. Federal Statutory Income Tax Rate

The federal statutory income tax rate remained constant at 21% throughout the entire period, indicating no changes in the standard federal tax rate applicable to the company.

State Taxes, Net of Federal Benefit

State taxes fluctuated modestly, starting at 2%, then decreasing to 1% in 2019, increasing back to 2% in 2020 and 2021, and finally dropping to 1% in 2022. This suggests minor variations in state tax obligations or benefits over time.

Research and Development Credits

R&D credits became increasingly beneficial, with percentages moving from -2% in 2018 and 2019 to -3% in 2020, briefly back to -2% in 2021, and reaching a peak benefit of -4% in 2022. This indicates an increasing impact of R&D tax credits in reducing the effective tax burden.

Foreign Earnings Taxed at Different Rates

These showed a declining trend in the negative impact, starting at -11% in 2018, improving to -7% in 2019, and stabilizing at -4% from 2020 through 2022. This suggests improved tax efficiency or changes in the composition of foreign earnings subject to different tax rates.

Foreign-Derived Intangible Income (FDII)

FDII impacts appeared starting in 2020, with -2%, then lessening to -1% in 2021, and increasing again to -3% in 2022. This reflects variable tax benefits or obligations related to intangible income derived from foreign sources.

Change in Tax Reserves

There was a notable decrease in changes to tax reserves, significantly dropping from 14% in 2018 to 6% in 2019, then progressively to 2%, 1%, and 1% in subsequent years. This pattern may indicate stabilization or reduced uncertainty in tax reserve adjustments over time.

Audit Settlements

The audit settlements showed volatility, with a large negative adjustment of -6% in 2018, followed by a positive 3% in 2019, and no data reported for the subsequent years. The absence of data from 2020 onward may imply no audit settlements or lack of disclosure.

Change in Tax Legislation

Changes due to tax legislation were recorded as -3% in 2018, no impact in 2019, minor negative influences in 2020 (-1%) and 2021 (-2%), and none reported for 2022. This reflects the effect of legislative changes diminishing over time.

Change in Valuation Allowance

Valuation allowance changes showed positive impacts with 3% in 2018, declining to 1% in 2019, increasing slightly to 2% in 2020, absent in 2021, and at 1% in 2022. This indicates some fluctuations in allowances for deferred tax assets.

Intra-Entity Intellectual Property (IP) Transfer

This had notable impacts in 2019 (-14%) and 2020 (-1%), but no effects reported in other years, suggesting significant one-time tax effects related to IP transfers occurred primarily during these two years.

Other

Minor tax effects were observed in 2019 at -1%, with no other instances recorded.

Effective Tax Rate, Before U.S. Tax Reform Act

This metric was 18% in 2018, sharply decreased to 8% in 2019, then increased to 16% in 2020, slightly decreased to 15% in 2021, and further declined to 13% in 2022. These shifts suggest variations in underlying tax expense drivers prior to considering reforms.

U.S. Tax Reform Act

The U.S. Tax Reform Act had a significant one-time impact of -15% in 2018 and no reported effects thereafter, indicating a substantial reduction in the effective tax rate during that year due to legislative changes.

Effective Tax Rate

The overall effective tax rate started very low at 3% in 2018, rose to 8% in 2019, then increased notably to 16% in 2020, followed by a slight decline to 15% in 2021, and further reduction to 13% in 2022. This trend shows increasing tax expenses from 2018 to 2020, stabilizing and slightly improving in subsequent years.

In summary, the data exhibits a stabilization of the statutory tax rate, while effective tax rates fluctuated considerably influenced by tax reforms, audit settlements, and international income factors. The increasing benefit from R&D credits and the decline in the impact of foreign earnings taxed at different rates indicate improved tax planning and efficiencies. Changes in tax reserves diminished significantly after 2018, suggesting reduced uncertainty. The company experienced one-time significant tax effects related to U.S. tax reform and intra-entity IP transfers but showed signs of stabilization and moderate improvement in the effective tax rate in the most recent periods.

Deferred Revenue

Deferred revenue fluctuated notably over the five-year period. It decreased from 136 million US dollars in 2018 to 119 million in 2019, then surged to 274 million in 2020, followed by a decline to 210 million in 2021 before reaching its highest point at 324 million in 2022. This pattern indicates variability in revenue recognition timing or changes in customer prepayments.

Tax Attributes Carryforwards

Tax attributes carryforwards displayed a steady upward trend, increasing consistently from 81 million in 2018 to 191 million in 2022. This growth suggests an expanding base of tax credits or losses available to offset future taxable income.

Share-based Compensation

The expense related to share-based compensation experienced a gradual decline from 69 million in 2018 to 46 million in 2021, followed by a marginal increase to 47 million in 2022. This trend may reflect changes in stock-based remuneration policies or the leveling off of employee stock awards.

Intangibles

Gross intangibles exhibited a substantial increase from 43 million in 2018 to over 1.2 billion by 2019, maintaining a high level through 2022 with minor fluctuations. The corresponding amortization (reflected as negative values) progressively increased in magnitude, indicating ongoing amortization expense against these assets.

U.S. Deferred Taxes on Foreign Earnings

Data on U.S. deferred taxes related to foreign earnings is incomplete for 2019 onward; however, the available negative deferred tax liabilities decreased from -594 million in 2019 to -491 million in 2022, suggesting reduced tax liabilities or repatriation impacts on foreign earnings.

Capitalized Software Development Expenses

Capitalized software development expenses showed inconsistent figures, reported at 67 million in 2019, dropping to 21 million in 2020, missing data in 2021, and rising again to 52 million in 2022. The amortization of these expenses fluctuated with a negative entry of -57 million in 2018 and -10 million in 2021. Despite gaps, the data hints at ongoing investment in software development followed by periodic capitalization and amortization.

Other Deferred Tax Assets and Liabilities

Other assets and liabilities categories showed some variance over time. Other deferred tax assets increased from 79 million in 2018 to 136 million in 2022, while related liabilities fluctuated, reaching peaks and troughs but generally trending toward stable levels. The valuation allowance on deferred tax assets became more negative, moving from -61 million to -305 million, indicating an increased reserve against uncertain tax assets.

Deferred Tax Assets and Liabilities (Net)

Total deferred tax assets grew steadily from 671 million in 2018 to 2.08 billion in 2022, while total deferred tax liabilities also increased but at a slower rate. Net deferred tax assets improved from 387 million in 2018 to 1.04 billion in 2022, reflecting an overall strengthening in the net deferred tax position.

Deferred Tax Assets, Net

The net deferred tax assets show a substantial increase from 403 million USD in 2018 to a peak of 1,377 million USD in 2021. This represents more than a threefold increase over the four-year period. However, in 2022, a decrease to 1,201 million USD is observed, indicating a slight reduction after the peak.

This upward trend from 2018 to 2021 suggests that the company was recognizing significantly higher future tax benefits, which could be due to an increase in deductible temporary differences or carryforwards. The decline in 2022 could signal either the realization of some deferred tax assets or changes in tax rates or estimates.

Deferred Tax Liabilities, Net

The net deferred tax liabilities exhibit a rising trend from a relatively low base of 18 million USD in 2018 to a substantial increase peaking at 506 million USD in 2021. Following that, there is a marked decrease to 158 million USD in 2022.

This pattern indicates the company experienced increasing future tax obligations over time, particularly between 2018 and 2021. The notable reduction in 2022 suggests that some deferred tax liabilities were settled or revalued downward. The volatility in these liabilities may reflect changes in asset valuations or differences in tax treatment of temporary differences.

Overall Analysis

Both deferred tax assets and deferred tax liabilities increased steadily from 2018 through 2021, reflecting growing temporary differences and the evolving tax positions of the company. The simultaneous peaks in 2021 followed by decreases in 2022 for both categories could imply adjustments in tax planning strategies or the impact of changes in tax regulations or business operations during that recent period.

Despite fluctuations, deferred tax assets remain substantially higher than deferred tax liabilities throughout the period, suggesting a net deferred tax asset position overall. This could indicate expectations of future tax benefits outweighing anticipated tax obligations.

The financial data across the five-year period from 2018 to 2022 reveals distinct trends in the company's assets, liabilities, shareholders’ equity, and net income when adjusted for annual reported and deferred income tax considerations.

Total Assets

Both reported and adjusted total assets exhibit a consistent upward trajectory throughout the period. Reported total assets increase steadily from 17,835 million US dollars in 2018 to 27,383 million US dollars in 2022, representing a compound growth. Adjusted total assets show a similar growth pattern but remain slightly below the reported figures, moving from 17,432 million to 26,182 million US dollars over the same timeframe.

Total Liabilities

Total liabilities, both reported and adjusted, demonstrate a less uniform pattern. Reported total liabilities rise from 6,478 million US dollars in 2018 to 8,140 million in 2022, with a noticeable peak in 2020 at 8,072 million followed by a decrease in 2021. Adjusted total liabilities follow a similar path but show slightly lower figures, increasing from 6,460 million in 2018 to 7,982 million in 2022, also peaking in 2020 before declining in 2021 and resuming growth in 2022.

Shareholders’ Equity

Shareholders’ equity consistently increases over the years in both reported and adjusted data. Reported equity rises from 11,357 million US dollars in 2018 to 19,243 million US dollars in 2022, indicating strengthened capitalization. Adjusted equity displays parallel growth from 10,970 million to 18,199 million US dollars, maintaining a close gap with reported values and confirming stable financial foundations through the period.

Net Income

Net income exhibits more volatility compared to other financial items. Reported net income decreases from 1,813 million US dollars in 2018 to 1,503 million in 2019, then surges significantly to 2,197 million in 2020 and further to 2,699 million in 2021, before sharply declining to 1,513 million in 2022. Adjusted net income follows a similar pattern but generally reports lower values, falling from 1,840 million in 2018 to 1,150 million in 2019, recovering to 2,100 million in 2020 and 2,711 million in 2021, with a subsequent drop to 1,345 million in 2022. This fluctuation suggests varying profitability influenced by factors that adjusted accounting seeks to clarify.

Overall, the data indicates a robust growth in total assets and shareholders’ equity, reflecting the company's expanding scale and financial strength. Liabilities show some variation, with peaks and troughs indicating fluctuations in debt levels or obligations management over the years. Net income volatility highlights changes in profitability that may be due to operational performance, market conditions, or tax-related adjustments.

The financial analysis over the period from 2018 to 2022 reveals several notable trends and changes in the adjusted and reported figures related to profitability, asset utilization, leverage, and returns.

Net Profit Margin

Both reported and adjusted net profit margins peaked in 2021 at approximately 30.66% and 30.8%, respectively, indicating maximum profitability during this period. However, a significant decline occurred in 2022, with reported margin falling to 20.1% and adjusted margin to 17.87%, suggesting reduced profitability in the latest year. The margins experienced a drop in 2019 followed by recovery in 2020 and 2021 before the decline in 2022.

Total Asset Turnover

The asset turnover ratios indicate a declining trend over the period. Both reported and adjusted total asset turnover declined consistently from 0.42-0.43 in 2018 to 0.27-0.29 in 2022. This decrease suggests less efficient use of assets to generate revenue as time progressed.

Financial Leverage

Financial leverage ratios remained relatively stable but showed a slight decline from 2018 through 2021, moving from about 1.57-1.59 down to approximately 1.42 before a minor rebound in adjusted leverage to 1.44 in 2022. This stability indicates a relatively consistent capital structure with modest changes in reliance on debt.

Return on Equity (ROE)

Reported and adjusted ROE trends mirror the profitability pattern. ROE increased from 2018 to 2021, reaching highs of 15.34% (reported) and 16.21% (adjusted), followed by a sharp decline in 2022 to 7.86% and 7.39%, respectively. This decline indicates a reduced return generated for shareholders in the most recent period.

Return on Assets (ROA)

ROA followed a similar trajectory, increasing steadily until 2021 with adjusted ROA peaking at 11.45%, then decreasing notably to 5.14% by 2022. This suggests a significant drop in asset profitability in the latest year analyzed.

Overall, the data illustrate a period of improving profitability and returns through 2021, accompanied by decreasing asset utilization efficiency. The consistent financial leverage suggests a stable approach to funding. However, a marked deterioration in profitability and return metrics in 2022 points to potential challenges affecting operational performance or market conditions during that year.

Reported net income

The reported net income experienced fluctuations over the five-year period. Starting at 1,813 million USD in 2018, it decreased to 1,503 million USD in 2019. It then increased sharply to reach a peak of 2,699 million USD in 2021 before declining significantly to 1,513 million USD in 2022.

Adjusted net income

The adjusted net income showed a somewhat similar trend, although exhibiting more pronounced variability. Beginning at 1,840 million USD in 2018, it dropped substantially to 1,150 million USD in 2019, followed by a recovery to 2,711 million USD in 2021. However, it fell again to 1,345 million USD in 2022, slightly lower than the reported net income for the same year.

Reported net profit margin

The reported net profit margin reflected a general upward trend until 2021, starting at 24.17% in 2018 and rising to a peak of 30.66% in 2021. Nonetheless, there was a marked decline to 20.1% in 2022, indicating reduced profitability relative to revenue in that year.

Adjusted net profit margin

The adjusted net profit margin followed a similar pattern but with greater volatility. It reduced substantially from 24.53% in 2018 to 17.72% in 2019, increased again to a high of 30.8% in 2021, and then declined sharply to 17.87% in 2022. This suggests that after considering adjustments for income taxes, the profit margins experienced significant fluctuations, with a notable decrease in the latest period.

Overall trends and insights

Both reported and adjusted net income and profit margins showed a peak in 2021, followed by a sharp decline in 2022. The variations in adjusted figures were more pronounced than the reported ones, reflecting the impact of annual and deferred income tax adjustments on profitability. The decline in 2022 may indicate increased costs, lower revenues, or tax-related factors affecting net earnings. The margins’ peak in 2021 corresponds with the highest income levels, indicating a period of strong profitability that was not sustained in the following year.

The analysis of the financial data over the five-year period reveals several noticeable trends in the reported and adjusted figures regarding total assets and total asset turnover ratios.

Total Assets

Reported total assets steadily increased each year, growing from US$17,835 million in 2018 to US$27,383 million in 2022, indicating a consistent expansion in the company's asset base.

Adjusted total assets also followed a similar upward trend, rising from US$17,432 million in 2018 to US$26,182 million in 2022. The adjusted values are consistently slightly lower than the reported figures but align closely in their growth progression.

Total Asset Turnover

Reported total asset turnover exhibited a declining trend over the period, falling from 0.42 in 2018 to 0.27 in 2022. This decrease suggests a reduction in the efficiency with which the company is generating revenue from its asset base.

Adjusted total asset turnover trends mirror the reported figures, decreasing from 0.43 in 2018 to 0.29 in 2022. Despite the decline, the adjusted turnover ratios remain marginally higher than the reported ratios throughout the years, indicating slightly better efficiency under the adjusted basis.

Overall, the data shows consistent asset growth accompanied by diminishing asset turnover ratios, reflecting that while the company has expanded its assets significantly, its ability to generate revenue from those assets has declined over the same period. The close alignment between reported and adjusted data suggests that the adjustments made for deferred income taxes do not materially alter the observed trends.

The financial data over the five-year period ending in 2022 reveals consistent growth in both reported and adjusted total assets. Reported total assets increased steadily from US$17,835 million in 2018 to US$27,383 million in 2022, representing an approximate 53.5% growth. Adjusted total assets follow a similar upward trend, rising from US$17,432 million in 2018 to US$26,182 million in 2022, indicating consistent asset base expansion after accounting for tax adjustments.

In parallel with asset growth, shareholders' equity also shows a notable upward trajectory. Reported shareholders’ equity increased from US$11,357 million in 2018 to US$19,243 million in 2022, which corresponds to an approximate increase of 69.5%. Adjusted shareholders’ equity similarly rose from US$10,970 million to US$18,199 million during the same period, reflecting strengthening net asset value when factoring in income tax adjustments.

Financial leverage ratios, which indicate the extent of debt usage relative to equity, demonstrate a declining trend from 2018 through 2021, followed by stabilization or a slight increase in 2022. Specifically, reported financial leverage decreased from 1.57 in 2018 to 1.42 in 2021 and remained steady at 1.42 in 2022. Adjusted financial leverage shows a similar pattern, declining from 1.59 in 2018 to 1.42 in 2021 before a slight rise to 1.44 in 2022. This trend suggests a gradual reduction in financial risk or debt reliance over most of the period, with a marginal increase observed in the latest year.

The parallel movement between reported and adjusted figures indicates consistent adjustments for deferred income taxes without significant distortion of the financial position. Both sets of data maintain proportional relationships between assets and equity, and comparable leverage ratios, reflecting the company’s stable financial structure and effective management of tax-related adjustments over time.

Total Assets

Steady and significant growth in both reported and adjusted measures, indicating asset base expansion.

Shareholders' Equity

Marked increase reflecting stronger net worth, with adjusted equity tracking closely alongside reported values.

Financial Leverage Ratios

General decline from 2018 to 2021, signaling reduced leverage and financial risk, with stabilization or slight uptick in 2022.

Tax Adjustments Impact

Adjustments for deferred income taxes produce minor differences without altering overall financial trend interpretations.

Reported Net Income

The reported net income experienced fluctuations over the five-year period. It declined from 1813 million USD in 2018 to 1503 million USD in 2019, then increased significantly to 2197 million USD in 2020 and peaked at 2699 million USD in 2021. However, in 2022, the reported net income declined sharply to 1513 million USD, approaching the 2019 level.

Adjusted Net Income

Adjusted net income also showed notable variability. It decreased markedly from 1840 million USD in 2018 to 1150 million USD in 2019, followed by a recovery to 2100 million USD in 2020. A further increase was observed in 2021, reaching 2711 million USD, which is the highest in the period. The figure then dropped substantially to 1345 million USD in 2022, showing a similar downward trend as reported net income but with lower absolute values in recent years.

Reported Shareholders’ Equity

The reported shareholders’ equity displayed consistent growth throughout the period analyzed. It rose steadily each year from 11357 million USD in 2018 to 19243 million USD in 2022, indicating a strengthening equity base despite fluctuations in net income.

Adjusted Shareholders’ Equity

Adjusted shareholders’ equity followed a similar upward trend as the reported figures. It increased annually from 10970 million USD in 2018 to 18199 million USD in 2022, reflecting continuous growth in equity when accounting for adjustments.

Reported Return on Equity (ROE)

The reported ROE showed variability corresponding with net income changes. It decreased from 15.96% in 2018 to 11.74% in 2019, rebounded to 14.61% in 2020, and improved again to 15.34% in 2021. In 2022, the ROE declined significantly to 7.86%, indicating lower efficiency in generating profits from shareholders' equity.

Adjusted Return on Equity (ROE)

Adjusted ROE trends mirrored those of reported ROE but with some differences in magnitude. It dropped from 16.77% in 2018 to 9.57% in 2019, increased to 14.86% in 2020 and further to a peak of 16.21% in 2021. The metric then fell noticeably to 7.39% in 2022, suggesting reduced profitability relative to adjusted equity.

Overall Trends and Insights

The data reveals an overall expansion in shareholders' equity, both reported and adjusted, reflecting ongoing capital growth. Net income, however, exhibited more pronounced volatility with considerable declines in 2019 and 2022, interspersed with peaks in 2020 and 2021. The profitability ratios (ROE) are consistent with these patterns, showing declines when net income fell and improvements during years of higher earnings. The sharp decreases in net income and ROE in 2022 warrant further investigation to understand underlying causes, as they contrast with the continuing growth in equity.

The financial data reveals several notable trends over the five-year period under review.

Net Income Trends

Both reported and adjusted net income exhibit fluctuations with an overall pattern of increase followed by a decline. Reported net income rose from 1,813 million US dollars in 2018 to a peak of 2,699 million in 2021 before dropping significantly to 1,513 million in 2022. Adjusted net income follows a similar trajectory, increasing from 1,840 million in 2018 to 2,711 million in 2021, then falling to 1,345 million in 2022. This indicates a strong performance growth until 2021, with a sharp contraction the following year, suggesting potential challenges or changes impacting profitability in 2022.

Total Assets

Both reported and adjusted total assets demonstrate a steady upward trend throughout the period. Reported total assets increased from 17,835 million US dollars in 2018 to 27,383 million in 2022, while adjusted total assets rose from 17,432 million to 26,182 million over the same timeframe. This consistent growth in assets indicates ongoing investments or acquisitions contributing to the company’s expanding asset base.

Return on Assets (ROA)

ROA metrics for both reported and adjusted figures show variability with a peak around 2021, followed by a marked decline in 2022. Reported ROA decreased from 10.17% in 2018 to 7.57% in 2019, then gradually increased to 10.77% in 2021 before dropping sharply to 5.53% in 2022. Adjusted ROA follows a similar pattern, starting at 10.56% in 2018, falling to 6.2% in 2019, rising to a high of 11.45% in 2021, and then falling to 5.14% in 2022. The increase in ROA until 2021 indicates improving efficiency in generating returns from assets, while the substantial decline in 2022 suggests a deterioration in asset profitability relative to the prior year.