Video game giant Activision Blizzard, Inc. (ATVI) will report earnings after the market closes on Thursday, May 3, and the quarter could give us an indication of how the business will change over the next decade. Not only are we looking for the usual operating metrics like revenue and earnings from video games, but there will be a lot of attention paid to how esports is going to drive the business going forward. 

Here are the key things to watch in next week's earnings report, starting with high-level numbers. 

Man playing video games on computer screen.

Image source: Getty Images.

What Activision Blizzard expects

The table below outlines the critical guidance metrics for the first quarter of 2018 that management gave to investors on Feb. 8, 2018. 

Metric GAAP Guidance Non-GAAP Guidance
Net revenue $1.82 billion $1.82 billion
Cost of goods sold 20% 20%
Operating margin 27% 36%
EPS $0.47 $0.65

Data source: Activision Blizzard investor presentation. GAAP = generally accepted accounting principles.

The other number to watch is net bookings, where guidance was $1.28 billion for the quarter. Bookings will be lower than revenue because of a lack of new games in the quarter, but will still give an indication of the momentum of the business. 

Audience reach will be key

One of the metrics I like to watch for Activision Blizzard each quarter is monthly active users (MAUs). This gives a measure of how engaging content is and whether engagement is trending upward or downward. Here's how each business stands. 

  • Activision's MAUs were 55 million in Q4.
  • Blizzard had 40 million MAUs. 
  • King had 290 million MAUs. 

There weren't any major product releases in the quarter, so Activision Blizzard is counting on product expansions like the Call of Duty: WWII 'The War Machine' pack and Crash Bandicoot N. Sane Trilogy making its way to Nintendo Switch and Xbox to drive engagement. Even if MAUs are flat versus the fourth quarter, it would be a positive sign for the company. 

Esports will be the focus

The most notable growth initiative for Activision Blizzard in 2018 is esports. Overwatch League was launched early this year and Call of Duty World League continues to expand, recently holding an event in Seattle. 

What I'll be watching in the first quarter is the financial impact esports is having on the business. Twitch reportedly agreed to a $90 million streaming deal with Overwatch League and, according to ESPN, HP Omen and Intel agreed to $17 million and $10 million advertising deals, respectively. There's also advertising and content deals with Sour Patch Kids, T-Mobile, and Toyota that could drive more revenue. 

Now that esports leagues are generating tens of millions of dollars in revenue and have tens of millions of viewers, we should start to see some impact on the financial statements of Activision Blizzard, which would help investors evaluate the long-term opportunity

Can Activision Blizzard keep outperforming expectations?

Activision Blizzard hasn't had a consistent growth path the last five years because video game launches can cause a lot of earnings volatility, but it has consistently beaten its own guidance and the expectations of investors. Next week, investors should watch whether or not first-quarter results beat guidance again and how the company's growth plans are shaping up both with traditional games and esports. Don't be surprised if esports starts to become a central growth platform.