Activision Blizzard (NASDAQ:ATVI) will announce results for its fiscal fourth quarter on Wednesday, Feb. 8. And if history is any guide, the video-game developer might have plenty of good news for investors for what's typically its strongest sales period.
A year ago, Activision shocked investors by blowing past its fourth-quarter forecasts on both the top and bottom lines thanks to healthy demand across established gaming franchises like Call of Duty and new properties including Overwatch.
Let's look at the prospects for another strong showing from the video-game giant next week.
Management's most recent outlook, issued in early November, called for sales of $2.34 billion that would mark a 5% decrease from the prior-year period. While investors shouldn't place much weight on short-term Wall Street targets, it's notable that these are running well above the company's own forecasts. Most analysts expect Activision to book closer to $2.5 billion of revenue for a slight boost over last year's record result.
You can't fault Wall Street for feeling optimistic. After all, Activision has beaten its own forecast in each of the last seven quarterly outings. The video-game industry apparently had a great holiday season, too, and that should disproportionately favor Activision, which earned the No. 1 and No. 2 spots on the gaming charts with Call of Duty: WWII and Destiny 2, respectively.
As for profits, CEO Bobby Kotick and his team forecast $0.82 per share for the quarter. If the company outperforms that result, as Wall Street expects, management will likely credit a mix of stronger-than-expected sales growth and a more dramatic shift toward the digital sales channel.
Audience and engagement metrics
Looking deeper into the results, investors will be watching Activision's audience reach and engagement metrics for evidence that its titles, and monetization strategies, are still resonating with gamers. There's no guarantee on this score, as rival Electronic Arts recently learned with its troubled rollout of the Star Wars: Battlefront game. Players weren't happy with their in-game spending choices, so EA had to suspend microtransactions for the title while promising to fix issues with the system.
Activision Blizzard didn't have a similarly high-profile stumble, and its biggest release of the year, Call of Duty: WWII, seemed to go off without a hitch. Thus, the developer will likely report encouraging operating metrics on Tuesday. Both the Activision and the Blizzard sides of the business set new third-quarter records for audience size back in November, after all, and that lift helped power over $1 billion of in-game spending.
Some of the aspects of the business that Kotick and his team are most excited about aren't areas you'd typically associate with a video-game company. They see huge potential for advertising revenue, for example, since game play, particularly within esports, is becoming more of a spectator draw. It helps that its base of almost 400 million gamers, on average, spend nearly an hour each day interacting with its titles. Activision is also exploring ways to monetize its deep library of characters through consumer products licensing in ways that would be familiar to fans of Disney's operating strategy.
These new business lines haven't yet grown big enough to make much of a dent in its operating results. But that could change with this week's quarterly report. And in any case, the developer's strategy to mature into a diverse entertainment giant should figure prominently in Activision's first official outlook for the fiscal year ahead.
Demitrios Kalogeropoulos owns shares of Activision Blizzard and Walt Disney. The Motley Fool owns shares of and recommends Activision Blizzard and Walt Disney. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.