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Activision Blizzard (NASDAQ: ATVI ) is set to report earnings after the market closes on Thursday. Here's what you need to watch for in the results.
Not great expectations
The first question that tends to dominate in the moments after earnings come out is whether the company met the Street's expectations. For Activision, that means booking at least $0.72 per share in profits, on $2.44 billion of revenue. Hitting those numbers would mark a 16% rise in earnings on just a 1% bump in sales. The outlook that the company gives here will be important, too. Analysts expect full-year earnings of about a dollar per share in 2013, on about $4.6 billion in revenue.
Key blockbuster products
That weak revenue performance is due to the fact that the video game industry is contracting. Total retail sales fell by 21% through most of last year. Still, the industry's top five titles actually grew sales by 15% over that time, making a handful of blockbuster products critical to gaming companies' bottom lines.
Activision's holiday results will be driven by its major franchises, Call of Duty and Skylanders. Both appeared to be popular last quarter, as Black Ops II set sales records, and the Skylanders sequel, Giants, made more than $195 million in U.S. sales since its October 2012 release. We'll find out on Thursday whether those hits were enough to make up for the broad weakness in the industry.
Rising digital revenues
One area that is showing strength within the video game sector is digital content, as game publishers bypass middlemen like GameStop, skip the cost of physical distribution, and sell titles and upgrades directly to customers. Electronic Arts, for example, just reported digital revenue sales of $1.5 billion, up 37% from the prior year.
Activision bucked that trend for most of 2012, thanks to increasing retail sales from the Skylanders products, which require physical purchases. But the holiday quarter should see the trend turn back into Activision's favor, as massive amounts of Call of Duty downloadable content purchases hit the company's books in the holiday quarter.
While Activision and Microsoft have been taking the headlines when it comes to console gaming, Fools following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. Our new special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now and we'll throw in a year of free quarterly updates as news breaks.