When Activision Blizzard (NASDAQ:ATVI) reports earnings after the market closes on Thursday, May 2, it will be the first time in a long time that investors will have fairly low expectations. Fourth-quarter results fell well below expectations, and guidance for 2019 was weak, given few impactful game releases and net competitive pressures from titles like Fortnite

As the year unfolds, investors will get a feel for how much the industry has changed, and how Activision Blizzard will hold up. Next week's results are the start of that journey. 

People playing video games together.

Image source: Getty Images.

The bar Activision Blizzard set for itself

The first bar to measure results against is management's guidance. Here's what it expected for the first quarter of 2019 as of Feb. 12, when the company released fourth-quarter 2018 results. 

Metric GAAP Non-GAAP
Revenue $1.72 billion $1.72 billion
EPS $0.39 $0.63

Data source: Activision Blizzard Q4 2018 results. 

This guidance compares with Q1 2018 revenue of $1.97 billion and non-GAAP earnings of $0.78 per share. Investors are prepared for a down quarter, which sets a low bar, but Activision Blizzard still has to clear it. 

What are gaming trends in 2019? 

One of the big things investors will be watching is the impact of a new generation of games on Activision Blizzard's results. Fortnite has gotten the most attention, but in the past three months, it's fallen from No. 3 to No. 5 in SuperData's measure of PC game revenue. Meanwhile, Electronic Arts' (NASDAQ:EA) League of Legends jumped to the No. 2 spot for PC games. 

It's undeniable that battle royale games are the hottest segment of the video game market today. Activision Blizzard is hoping that the segment is losing some steam, leaving room for more traditional console and mobile games. 

Where are esports? 

Another growth segment that Activision Blizzard has invested a lot in during the past few years is esports. Overwatch League, in particular, has the ability to sell out arenas but hasn't been a big revenue generator for Activision Blizzard thus far. 

Investors will want to see progress in generating revenue from Overwatch League, now that it's in its second season. Look for management to talk about the financial impact, because as of now, esports haven't moved the needle much for Activision Blizzard. 

Finding answers

The past two quarters have been rough for Activision Blizzard, and the stock responded by falling more than 30% in the past six months. This year is something of a transition year as the company adapts to new demands for video games, like battle royale modes and multiplatform support. The company aims to expand platform support with Call of Duty for mobile, which is in preregistration right now. More games will likely move in that direction, but it'll take time to build the necessary infrastructure. 

Investors should keep an eye on the financial results reported for the first quarter, but more important answers will come from the conference call, when management will lay out how it sees the future of video games. Activision Blizzard no longer has the hottest titles on the market, so it needs some exciting new content in the pipeline -- and that may be more important than any short-term results that will be reported next week.