Activision Blizzard Inc. (NASDAQ:ATVI)

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Activision Blizzard Inc., Profitability Ratios: Reported vs. Adjusted

Activision Blizzard Inc., adjusted profitability ratios

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net Profit Margin
Reported net profit margin	20.10%	30.66%	27.17%	23.16%	24.17%
Adjusted net profit margin	20.06%	30.75%	27.15%	23.04%	24.24%
Return on Equity (ROE)
Reported ROE	7.86%	15.34%	14.61%	11.74%	15.96%
Adjusted ROE	7.85%	15.38%	14.60%	11.68%	16.01%
Return on Assets (ROA)
Reported ROA	5.53%	10.77%	9.51%	7.57%	10.17%
Adjusted ROA	5.51%	10.80%	9.50%	7.53%	10.19%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The profitability and return metrics exhibit a cyclical trend between 2018 and 2022, characterized by a period of growth peaking in 2021 followed by a significant contraction in 2022. A comparison between reported and adjusted figures reveals a negligible variance across all metrics, indicating that mark-to-market adjustments for available-for-sale securities had a minimal impact on the company's overall financial performance during this period.

Net Profit Margin: The reported net profit margin experienced moderate fluctuations, declining slightly from 24.17% in 2018 to 23.16% in 2019 before climbing to a peak of 30.66% in 2021. A sharp reversal occurred in 2022, with the margin falling to 20.10%. The adjusted net profit margin closely mirrored this trajectory, maintaining nearly identical values throughout the five-year period.
Return on Equity (ROE): ROE demonstrated significant volatility, starting at 15.96% in 2018 and dropping to 11.74% in 2019. A recovery phase followed, with the ratio rising to 15.34% by 2021. However, 2022 saw a substantial decline to 7.86%, representing the lowest point in the analyzed timeframe. The adjusted ROE shows no material deviation from the reported figures.
Return on Assets (ROA): ROA followed a pattern consistent with ROE, with a reported decline from 10.17% in 2018 to 7.57% in 2019. Performance improved over the subsequent two years, reaching a high of 10.77% in 2021. In 2022, ROA decreased sharply to 5.53%. The adjusted ROA remained aligned with the reported ROA, confirming that the adjustments for available-for-sale securities did not meaningfully alter asset efficiency ratios.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in millions)
Net income	1,513)	2,699)	2,197)	1,503)	1,813)
Net revenues	7,528)	8,803)	8,086)	6,489)	7,500)
Profitability Ratio
Net profit margin¹	20.10%	30.66%	27.17%	23.16%	24.17%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income	1,510)	2,707)	2,195)	1,495)	1,818)
Net revenues	7,528)	8,803)	8,086)	6,489)	7,500)
Profitability Ratio
Adjusted net profit margin²	20.06%	30.75%	27.15%	23.04%	24.24%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Net profit margin = 100 × Net income ÷ Net revenues
= 100 × 1,513 ÷ 7,528 = 20.10%

² Adjusted net profit margin = 100 × Adjusted net income ÷ Net revenues
= 100 × 1,510 ÷ 7,528 = 20.06%

The profitability profile of Activision Blizzard Inc. from 2018 through 2022 demonstrates a cyclical trajectory, characterized by steady growth peaking in 2021 followed by a significant contraction in 2022.

Adjusted Net Profit Margin Trends: The adjusted net profit margin experienced a slight decrease from 24.24% in 2018 to 23.04% in 2019, before entering a phase of expansion. The margin increased to 27.15% in 2020 and reached a five-year peak of 30.75% in 2021. However, a sharp reversal occurred in 2022, with the margin falling to 20.06%, marking the lowest efficiency level recorded during the analyzed period.
Adjusted Net Income Performance: Adjusted net income mirrored the trajectory of the profit margins. After a decline to 1,495 million US$ in 2019, earnings grew consistently, peaking at 2,707 million US$ in 2021. By the end of 2022, adjusted net income decreased to 1,510 million US$, returning to levels similar to those observed in 2019.
Convergence of Reported and Adjusted Metrics: A high degree of correlation is observed between reported and adjusted financial metrics. The variance between reported and adjusted net profit margins remained marginal throughout the five-year period, often differing by less than 0.10%. This suggests that non-recurring items and accounting adjustments had a negligible influence on the company's overall net profitability.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in millions)
Net income	1,513)	2,699)	2,197)	1,503)	1,813)
Shareholders’ equity	19,243)	17,599)	15,037)	12,805)	11,357)
Profitability Ratio
ROE¹	7.86%	15.34%	14.61%	11.74%	15.96%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income	1,510)	2,707)	2,195)	1,495)	1,818)
Shareholders’ equity	19,243)	17,599)	15,037)	12,805)	11,357)
Profitability Ratio
Adjusted ROE²	7.85%	15.38%	14.60%	11.68%	16.01%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × 1,513 ÷ 19,243 = 7.86%

² Adjusted ROE = 100 × Adjusted net income ÷ Shareholders’ equity
= 100 × 1,510 ÷ 19,243 = 7.85%

The financial performance between 2018 and 2022 is characterized by significant volatility in profitability and equity returns, with a distinct peak in 2021 followed by a sharp contraction in 2022. A high degree of alignment exists between reported and adjusted figures, suggesting that non-recurring items had a negligible impact on the bottom line and overall return on equity throughout the analyzed period.

Net Income Trajectory: Reported net income fluctuated from US$ 1,813 million in 2018 to a low of US$ 1,503 million in 2019. A strong recovery followed, with earnings rising to US$ 2,197 million in 2020 and reaching a five-year peak of US$ 2,699 million in 2021. However, this growth trend reversed sharply in 2022, with net income falling to US$ 1,513 million.
Adjusted Return on Equity (ROE) Analysis: Adjusted ROE mirrors the movement of net income, starting at 16.01% in 2018 and declining to 11.68% in 2019. The ratio then improved over the next two years, reaching 14.60% in 2020 and 15.38% in 2021. A significant downturn occurred in 2022, where the Adjusted ROE dropped to 7.85%, representing a reduction of nearly half of its 2021 value.
Comparison of Reported and Adjusted Metrics: The variance between reported and adjusted metrics is minimal across all five years. For instance, in 2021, the difference between Reported ROE (15.34%) and Adjusted ROE (15.38%) was only 4 basis points. This consistency indicates that the company's operational performance and equity returns were not significantly distorted by one-time accounting adjustments or exceptional items.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in millions)
Net income	1,513)	2,699)	2,197)	1,503)	1,813)
Total assets	27,383)	25,056)	23,109)	19,845)	17,835)
Profitability Ratio
ROA¹	5.53%	10.77%	9.51%	7.57%	10.17%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income	1,510)	2,707)	2,195)	1,495)	1,818)
Total assets	27,383)	25,056)	23,109)	19,845)	17,835)
Profitability Ratio
Adjusted ROA²	5.51%	10.80%	9.50%	7.53%	10.19%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × 1,513 ÷ 27,383 = 5.53%

² Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × 1,510 ÷ 27,383 = 5.51%

The financial performance from 2018 to 2022 exhibits significant volatility in both profitability and asset efficiency. An overall cycle of contraction, expansion, and subsequent decline is evident, with the peak of performance occurring in 2021.

Adjusted Net Income Trends: Adjusted net income fluctuated throughout the period, beginning at US$ 1,818 million in 2018 and decreasing to US$ 1,495 million in 2019. A strong recovery followed, with income rising to US$ 2,195 million in 2020 and peaking at US$ 2,707 million in 2021. However, a sharp contraction occurred in 2022, with adjusted net income falling to US$ 1,510 million, returning to levels comparable to those seen in 2019.
Adjusted Return on Assets (ROA) Analysis: The adjusted ROA closely mirrored the trajectory of net income. After a decline from 10.19% in 2018 to 7.53% in 2019, the metric recovered to 9.50% in 2020 and reached a five-year high of 10.80% in 2021. The period concluded with a substantial drop to 5.51% in 2022, representing the lowest asset efficiency level recorded during the analyzed timeframe.
Comparative Analysis of Reported and Adjusted Metrics: A negligible variance is observed between reported and adjusted figures for both net income and ROA across all five years. This suggests that non-recurring items or specific accounting adjustments did not significantly distort the company's core profitability or its capacity to generate returns from its asset base.

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