Two young men playing video games

Image source: Getty Images.

Activision Blizzard (NASDAQ:ATVI) is set to post earnings results for the key holiday sales period on Thursday, Feb. 9. The stock is trouncing the market over the last five years, but investors have pushed it lower since its last quarterly check-in.

There's a lot riding on this report, given that it includes the launch of the latest chapter in the video game developer's Call of Duty franchise and will give shareholders their first look at executives' 2017 growth forecast. So, let's look at what investors can expect from the announcement.

Hitting the target

In early November, just a day before the global launch of Call of Duty: Infinite Warfare, CEO Bobby Kotick and his executive team forecast fourth-quarter revenue of $2.38 billion, up 12% from the prior year's result. Wall Street is slightly more conservative, with consensus estimates targeting an 11% jump in sales to $2.36 billion. On earnings, Activision's management is projecting a drop to $0.74 per share from the prior year's $0.83 per share, with consensus targets again looking for just slightly less, at $0.73 per share.

While it's important that the company can meet or exceed its own forecasts, investors shouldn't get too caught up in the top- and bottom-line results. What's more critical to see is that the business continue showing operating and financial strength.

Operating trends

For Activision, that means healthy digital revenue gains and improving profitability. Online sales channels were up 43% over the last three quarters and have more than doubled when you include the newly acquired King Digital business. That makes it an easy bet that the company will beat rival Electronic Arts (NASDAQ:EA), which this past week announced a 15% digital sales boost for the fourth quarter.

A scene from the Destiny game.

Image source: Activision Blizzard.

Activision should also manage a big uptick in profitability. Operating income recently hit a record on both the Blizzard and Activision sides of the business, with especially strong results coming from Blizzard's spiking engagement levels. That segment hit a record 42 million active users with help from the hit Overwatch release and popular expansions in both the Hearthstone and World of Warcraft franchises.

Infinity Warfare will likely be the key driver in this quarter's results, given that it edged past EA's solid new chapter in the Battlefield franchise to become the top-selling console game in the world in 2016.

Entertaining the world

Activision's 2017 pipeline will include an entirely new installment in its maturing Call of Duty franchise along with expansions in many of the brands it has launched over the last few years, including Destiny, Overwatch, and Hearthstone. Look for the company to outline an ambitious release calendar that stresses a mix of full game downloads, in-game purchases, and subscription plans for these titles. There will likely also be a launch of splashy new intellectual property on the horizon.

Meanwhile, management will spend much of the coming year expanding into complementary business models that aren't directly tied to video game development. Just this week, it announced a new consumer products division that executives hope will help Activision extract more value out of its deep trove of characters. Similarly, Kotick and his team are plowing resources into their e-sports initiatives in order to capitalize on the surging demand for video games as spectator entertainment.

These moves ideally won't distract from the company's core focus of innovating across its portfolio of titles to drive engagement levels ever higher. Yet if Activision can continue dominating sales charts while adding new revenue streams -- like in-game advertising and television content licensing, which reflect its transition into a broader entertainment company -- then that should only add to its earnings power over time.

Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.