Activision Blizzard (ATVI) reports its third-quarter earnings on Thursday, Nov. 2, after the market close. Here's what investors should watch.

Game box art of Activision's Destiny 2 featuring three characters holding weapons while in combat.

IMAGE SOURCE: ACTIVISION BLIZZARD

Headline numbers

On a GAAP basis, management is calling for revenue to decline 12% to $1.385 billion. Two games were released in the quarter -- a remastered version of the classic Starcraft strategy game on PC and Destiny 2 on console. In addition, new content was released for Blizzard's Hearthstone, Activision's Call of Duty: Infinite Warfare, and King's mobile games.

For earnings, management expects to report $0.09 per share, down from $0.26 in the year-ago quarter. This is due to higher operating expense as the company ramps up marketing for the release of Call of Duty: World War II in November, as well as expenses to get the Overwatch League esports venture up and running.

For perspective, the consensus analysts estimate predicts the game maker's non-GAAP (adjusted) revenue to grow 6.7% year over year to $1.74 billion, while non-GAAP earnings are expected to be down $0.03 per share from Q3 2016 to $0.49 per share.

New games

It's a busy fall for Activision Blizzard. Destiny 2 launched on console in September, and it surpassed the original Destiny (released in 2014) in sales and player engagement in the opening week after release. What's even better is that by the time Activision reports third-quarter earnings, Destiny 2 will have launched on PC for the first time, reaching a whole new audience.

Also, Call of Duty: World War II releases in November and promises to be another blockbuster. Last year's Call of Duty: Infinite Warfare was a disappointment and didn't sell very well. But this year may be different. There's been a lot of hype in the gaming community about the classic military shooter returning to its roots with a historical setting, which is what put the Call of Duty series on the map more than a decade ago.

Digital revenue

Other than new game sales, investors should watch the growth of digital revenue, since this is just as important to the company's success as new game sales. Through the second quarter of 2017, Activision Blizzard generated 80% of its trailing-12-month revenue from digitally delivered content, which includes in-game purchases, subscriptions, and full game downloads. The biggest component of digital revenue is in-game purchases which made up 54% of Activision's total revenue in 2016.

Along with digital revenue performance, investors should listen for updates on engagement metrics, such as monthly active users and time spent in games. These metrics shouldn't be evaluated in isolation from digital revenue, but provide investors a deeper understanding as to the health of the company's franchises.

Two Overwatch characters made up as Frankenstein and a scientist.

Overwatch seasonal events help increase player engagement through new seasonal-themed content. IMAGE SOURCE: PLAYOVERWATCH.COM

One key engagement driver for the third quarter could come from Overwatch, which had its Summer Games seasonal event in August and ran a free promotion to allow new players to play the game for free toward the end of the quarter. Overwatch is currently having its Halloween Terror seasonal event. In last year's event, management reported that player reaction was very positive and it helped stimulate player interest in the game. In-game spending across all of the companies' games reached a record $1 billion during Q3 2O16, so listen for comments about Overwatch engagement levels in light of these special events.

Looking ahead

Finally, listen for a progress update on Overwatch League as the professional video game league is set to begin its first season in January. The company also is pursuing consumer products and in-game advertising in King's mobile games as long-term growth opportunities. Investors will want to know how these strategies are shaping up for the future, as they are important in helping Activision lessen its dependence on new game sales.