Please ensure Javascript is enabled for purposes of website accessibility

Activision Blizzard Inc. Earnings Preview: What to Watch

By Demitri Kalogeropoulos - Oct 25, 2017 at 8:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The video game developer has a lot to prove when it posts earnings results next week.

If beating earnings expectations is a game, then Activision Blizzard (ATVI -0.51%) is winning. The company has passed management's financial targets in each of the past five quarters, after all.

Considering the run-up in the stock so far this year, Wall Street is betting Activision will add to that impressive streak when it posts fiscal second-quarter figures after the market closes on Thursday, Nov. 2.

Two young men celebrate while holding video game controllers.

Image source: Getty Images.

Let's look at a few key trends to watch in the video game developer's fiscal third-quarter announcement.

By the numbers

 Metric

Q3 2017 Projection

Q3 2016

Year-Over-Year Change

Revenue

$1.7 billion

$1.63 billion

4%

Earnings per share

$0.45

$0.52

(14%)

Data source: Activision Blizzard's financial filings. Figures are non-GAAP.

CEO Bobby Kotick and his team are calling for sales to inch higher while earnings take a step back from the prior year's record result. Those numbers will be influenced by the performance of its biggest single launch in the quarter, Destiny 2.

Activision indicated in September that the game is off to a strong start. It enjoyed eight straight days of at least 1 million concurrent players, for one. The title also set a release record on consoles and should have its sales -- and profits -- boosted by its subsequent launch on PCs. Activision is making Destiny 2 available for direct purchase exclusively through its own PC store to mark the first time that a non-Blizzard title has gotten that treatment.

Audience and engagement

The Destiny 2 launch could help Activision widen its gamer audience following last quarter's decline. Remember, the gamer base sank to 407 million in the second quarter from 431 million in the prior year. That result wasn't as bad as it looked, though.

The Blizzard side of the business, in fact, hit a new engagement record thanks to strong demand in the Overwatch franchise and growth in the core World of Warcraft and Diablo brands. The Activision segment held steady despite having no major release in the quarter, and the King Digital unit lost a big chunk of casual players but ended up improving overall engagement while lifting profitability. I'd expect to see healthy overall audience and engagement metrics along those lines in next week's report.

The holiday outlook

Finally, look for a bright forecast from Activision on the upcoming holiday quarter. Sure, its latest Call of Duty release might not attract as many gamers as prior franchise launches did. But the company is having no problem extracting value from that iconic brand lately through steady content expansions like the recent Zombies Chronicles release.

A screenshot from Activision's "Destiny" game.

Image source: Activision Blizzard.

Management's holiday outlook might get a boost from the advertising platform they've been building into the King Digital gaming business as part of Activision's long-term strategy to grow into more of a diversified entertainment company.

The developer's latest big-picture forecast calls for sales to inch up to another record of $6.6 billion this year. Net income is expected to rise to almost $1.5 billion from $966 million in 2016. Those are aggressive growth predictions as they stand. But if Activision follows its recent pattern and raises full-year targets for the third time this year, it will be due to success across several important metrics, including engagement, audience size, and rising demand by gamers for digitally delivered content.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Activision Blizzard, Inc. Stock Quote
Activision Blizzard, Inc.
ATVI
$80.59 (-0.51%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.