Video-game giant Activision Blizzard (ATVI) will post its quarterly earnings results after the market closes on Thursday, May 4. The stock is up sharply heading into the announcement, which means the pressure is on for the company to post impressive operating figures this week.

With that in mind, here are three key trends for investors to watch in the announcement.


Gamer engagement forms the basis for Activision's entire business model. So long as the developer can produce a steady stream of high-quality content that keeps players coming back for more, its revenue and profits should keep climbing.

A room filled with people playing PC games.

Image source: Getty Images.

The latest results have been strong on this score. In fact, both the Activision and Blizzard sides of the business set all-time records for audience size last year, with 86 million active gamers between them. The older franchises of World of Warcraft and Call of Duty contributed a large portion of that base, but so did newer properties like Hearthstone.

Look for audience levels to rise again this quarter, with a big assist from hit new property Overwatch. That game attracted 25 million registered players quickly after its release to become the quickest franchise to reach that mark in Blizzard's history. The developer ideally kept that momentum going beyond the launch period. 

Mobile wins

Activision has big plans for the massive user base it acquired when it bought King Digital last year, and this is the quarter when it should show solid progress toward those goals. The company has been carefully rolling out advertising and other monetization upgrades, including in-game purchases, to this audience, and the shifts should drive higher revenue and profitability -- assuming mobile gamers don't just bolt to rival apps.

Last quarter included just the first phase of that rollout, but the early signs have been encouraging. Operating income in the King Digital business hit 34% of sales, which was just a shade below Activision's record 35% margin. 

Digital spending

Sales from digital channels spiked by almost 100% last quarter as the company pushed millions of small in-game purchases, new digital subscriptions, and an increasing proportion of full-game downloads.

Digital now makes up roughly three quarters of revenue and has helped produce record profitability for Activision and for rivals like Electronic Arts (EA 0.49%). Unlike its bigger competitor, EA provides investors with a detailed breakdown of where the recent e-commerce gains are coming from. The biggest boost last quarter was thanks to full game downloads in high-profile franchises like Battlefield. But the developer also managed double-digit growth in subscriptions, add-on content, and mobile. EA credited the surge toward digital delivery as the main reason  gross profit margin soared by 6 full percentage points in Q4.

Activision's booming subscription business -- anchored by World of Warcraft -- ensures that it has a significantly higher proportion of digital sales than EA. But there's still plenty of room to grow that channel, and investors will be looking for progress on that front this week.

EA Gross Profit Margin (TTM) Chart

EA Gross Profit Margin (TTM) data by YCharts.

Activision could surprise Wall Street with details on an as-yet unannounced new franchise property. There's also the chance that one or more of the new business models it is exploring, including consumer products, TV content licensing, and e-sports, will take off and push results sharply higher than management had expected.

On the other hand, a high-profile release stumble or resistance to monetization from King Digital's user base both have the potential to disrupt the developer's growth plans this year. Still, Activision has beat its own guidance in each of the last four quarters, so investors are expecting mainly good news on Thursday.