Activision Blizzard Inc. (NASDAQ:ATVI)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes experienced a notable fluctuation over the observed period. After an initial decrease from 1,379 million US dollars in 2018 to 980 million in 2019, there was a substantial increase in 2020 reaching 2,485 million. This was followed by a decline in 2021 to 2,162 million, before slightly rising again to 2,208 million in 2022. The overall trend indicates volatility with a recovery and growth phase beginning in 2020.

Cost of Capital

The cost of capital showed a gradual and consistent increase across the years, moving from 8.51% in 2018 to 8.73% in 2022. Each year, the cost of capital rose marginally, reflecting a steadily increasing required return on invested capital or potential changes in market risk conditions.

Invested Capital

Invested capital exhibited an upward trend from 16,084 million US dollars in 2018 to a peak of 22,243 million in 2021. However, there was a decline to 19,837 million in 2022. The initial steady increase suggests expansion or additional investment in operations, while the reduction in 2022 might indicate divestments, asset sales, or efficiency improvements.

Economic Profit

The economic profit showed high variability throughout the analyzed period. It was marginally positive in 2018 at 10 million US dollars, sharply declined into a significant negative value of -493 million in 2019, and then rebounded strongly to 716 million in 2020. In 2021, economic profit decreased to 234 million but increased again to 477 million in 2022. This pattern implies inconsistent value creation relative to the cost of capital, with notable recovery after 2019.

Summary Insights

Overall, the company displayed a recovery in operational profitability starting in 2020 after a decline in 2019. The cost of capital increased steadily, slightly pressuring economic profit results. Invested capital grew substantially until 2021, followed by a contraction in the latest year, which may indicate strategic adjustments. Economic profit variability highlights challenges in consistently generating returns above the cost of capital, though the trend suggests improvement after initial setbacks.

Net Income

The net income exhibited volatility over the five-year period. Starting at 1,813 million US dollars in 2018, it declined to 1,503 million in 2019. This was followed by a substantial increase in 2020, reaching 2,197 million. The upward trend continued in 2021, culminating in a peak of 2,699 million. However, in 2022, net income dropped sharply to 1,513 million, almost reverting to the 2019 level.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated an inconsistent trend throughout the timeline. It started at 1,379 million US dollars in 2018, decreased substantially to 980 million in 2019, then sharply increased to 2,485 million in 2020. Unlike net income, NOPAT decreased in 2021, reaching 2,162 million, but showed a slight rebound in 2022 to 2,208 million. Despite fluctuations, the overall level of NOPAT in the latter years remained higher than the initial years.

Comparative Insights

While both net income and NOPAT fluctuated, their trends did not move entirely in tandem, especially notable in 2021 and 2022. Net income reached its highest point in 2021, but saw a steep decline the following year, whereas NOPAT remained relatively stable in those two years. The divergence suggests variations in operational efficiency and the impact of other financial factors such as non-operating income or expenses.

Overall Interpretation

The data reflects a period of considerable financial fluctuation with some years of strong profitability followed by significant declines. The volatility might imply external market impacts, changing operational conditions, or other elements influencing profitability both at the operational and net levels. Further investigation into the underlying causes of these trends would be necessary for comprehensive understanding and strategic decision-making.

The financial data reveals notable fluctuations in both income tax expenses and cash operating taxes over the five-year period from 2018 to 2022.

Income Tax Expense

The income tax expense demonstrates a significant upward trend from 2018 to 2021, increasing from $64 million in 2018 to a peak of $465 million in 2021. This represents a more than sevenfold increase over the four-year span. However, in 2022, income tax expense dropped sharply to $231 million, approximately half of the 2021 level, indicating a substantial reduction.

Cash Operating Taxes

The cash operating taxes present a different pattern, with a steep increase observed between 2018 and 2019, from $54 million to $478 million. This level remained relatively stable in 2020 and 2021, with values of $535 million and $473 million respectively. In 2022, there was a noticeable decrease to $384 million, indicating a downward adjustment following the previous high-pressure tax years.

Overall, the data suggests a period of escalating tax-related expenses through 2019 to 2021, with both income tax expense and cash operating taxes reaching their highest points during this time. The subsequent decline in 2022 could imply changes in profitability, tax planning strategies, or external tax regulations impacting the company's tax liabilities. The divergence in the scale and timing of changes between income tax expenses and cash operating taxes highlights different components that contribute to the company’s overall tax burden.

Total reported debt & leases

The reported debt and leases remained relatively stable from 2018 to 2019, with a slight decrease from 2,984 million USD to 2,948 million USD. However, there was a notable increase in 2020, rising to 3,895 million USD. The debt level then plateaued in 2021 at 3,897 million USD and marginally decreased to 3,856 million USD in 2022. Overall, debt showed moderate growth peaking in 2020 and 2021 before slightly declining.

Shareholders’ equity

Shareholders’ equity demonstrated a consistent upward trend throughout the period analyzed. It increased steadily from 11,357 million USD in 2018 to 12,805 million USD in 2019, then to 15,037 million USD in 2020. This growth continued into 2021 with equity reaching 17,599 million USD and further expanded to 19,243 million USD in 2022. The rising equity suggests strengthening of the company's net asset base over time.

Invested capital

Invested capital showed an overall increasing trend from 16,084 million USD in 2018 to a peak of 22,243 million USD in 2021. Notably, invested capital grew each year from 2018 through 2021. However, in 2022, there was a decline to 19,837 million USD, indicating a reduction in total capital invested in the business after several years of growth.

Summary Insights

Between 2018 and 2021, the company exhibited growth in both shareholders’ equity and invested capital, reflecting expansion and possibly reinvestment into the business. The relatively stable but elevated debt levels from 2020 onwards may indicate increased borrowing or lease obligations supporting this expansion. The decline in invested capital in 2022 despite continued growth in equity could signal asset disposals, capital restructuring, or efficiency improvements. Meanwhile, the slight reduction in debt in 2022 suggests cautious management of financial leverage following the prior increase.

Economic Profit

The economic profit demonstrated significant volatility over the analyzed periods. Initially, there was a modest positive value, followed by a sharp decline into a substantial negative territory in 2019. This was succeeded by a robust recovery in 2020, achieving the highest positive economic profit within the timeframe. Subsequently, a reduction occurred in 2021, although the value remained positive, before increasing again in 2022, indicating a resumption of improved economic profitability.

Invested Capital

The invested capital exhibited a general upward trend from 2018 through 2021, reflecting continuous asset growth or increased investment activities. However, in 2022, there was a notable contraction, indicating possible divestments or asset reductions which could be linked to strategic adjustments or operational efficiencies.

Economic Spread Ratio

The economic spread ratio followed a pattern closely aligned with economic profit dynamics. It started marginally positive, deteriorated into a negative spread in 2019, suggesting a period where returns did not cover the cost of capital. There was a subsequent pronounced positive increase in 2020, signifying improved value creation. In 2021, the spread shrank but remained positive, and in 2022, the ratio increased again, suggesting enhanced efficiency in utilizing invested capital to generate returns.

Economic Profit Trends

The company's economic profit demonstrated significant volatility over the five-year period. Starting with a modest positive value in 2018, it declined sharply to a substantial negative figure in 2019, indicating a period of diminished value generation or increased economic costs. This was followed by a strong recovery in 2020, reaching the highest economic profit recorded in the period. Thereafter, the profit decreased in 2021 but remained positive, before increasing again in 2022. Overall, the economic profit shows a cyclical pattern with notable recovery phases after downturns.

Adjusted Net Revenues

Adjusted net revenues displayed variability but with an overall upward trajectory from 2018 to 2022. The revenue decreased from 2018 to 2019 but then increased significantly in 2020. Following a slight decline in 2021, revenues resumed an upward trend in 2022, reaching the highest level in the examined period. This pattern suggests the company faced challenges in 2019 but managed to grow revenues substantially in subsequent years.

Economic Profit Margin

The economic profit margin mirrored the volatility observed in the economic profit. Starting from a very low positive percentage in 2018, it dropped sharply into negative territory in 2019, reflecting the economic loss experienced that year. The margin rebounded strongly in 2020, exceeding previous positive levels, but declined in 2021. In 2022, the margin increased again, achieving a moderate positive rate. These fluctuations imply varying levels of profitability relative to the company's revenue base, with a general recovery trend after 2019.

Overall Insights

The data reveals that the company experienced a challenging fiscal year in 2019, characterized by a decline in both economic profit and revenues. However, the subsequent years indicate a recovery phase, with increased revenues and improvement in economic profit and margins. Despite some year-to-year fluctuations, the company managed to restore positive economic profit and enhance profit margins by 2022. This suggests effective management responses boosting profitability after the downturn. Continued monitoring of these financial indicators will be important to assess the sustainability of this recovery.