Investors have high expectations for Activision Blizzard's (NASDAQ:ATVI) upcoming earnings report. The video game publisher posted encouraging results in its last quarterly outing -- and that was before the COVID-19 pandemic put a huge premium on at-home entertainment.

That unusual consumer landscape means Activision will probably post some eye-popping engagement and audience numbers on Tuesday, May 5. But the bigger questions revolve around whether the developer can maintain the positive momentum beyond just a short-term sales boost.

Let's jump right in.

A young man playing a video game.

Image source: Getty Images.

Engagement numbers

Most investors who follow the stock are predicting sales of $1.32 billion, or a bit more than the $1.28 billion that management forecast back in early February. The optimism is well founded, considering Activision easily surpassed its outlook in the previous quarter, with sales landing at $2 billion over the holiday season compared to the $1.8 billion that CEO Bobby Kotick and his team had estimated.

Engagement is likely to be strong, as consumers started spending more time with properties like World of Warcraft, Call of Duty, and Overwatch in recent weeks. Audience size is a key metric to watch here. Three months ago, the growth company counted 128 million active players on the Activision side of the business and 32 million across Blizzard franchises. These numbers, plus the 249 million King Digital users, could all creep higher this week.

Advertising checkup

Higher advertising sales have been a big benefit for the King Digital business, which has struggled with a shrinking audience size despite the popularity of its Candy Crush brand. That shift is mostly by design, as Activision works to build a more profitable base of casual gamers. But it will be interesting to see how that segment has adjusted to the tougher selling environment since the COVID-19 pandemic.

King's operating margin rose 1 percentage point last quarter to close the gap with the rest of the business. Its 39% profitability is still trailing Blizzard's 44% and Activision's 49%. We'll find out this week if that positive trend stalled due to the weaker advertising within casual games.

The bullish outlook

Investors had some good reasons for optimism even before the video game industry got a jolt from the extra stay-at-home time starting in late March. Call of Duty returned to the top of the sales charts in February, for example, and the franchise likely saw even more success from its entry into the free-to-play battle royale genre. Executives also demonstrated their confidence about the business in boosting the annual dividend by 11%.

The updated outlook that management issues will be the best clue yet about the stability of the recent sales uptick. Back in February, Activision had called for a return to revenue growth, with gains landing at about 5% in 2020. Earnings should come in at $2.22 per share, they said.

Investors have become more optimistic on both scores in recent weeks, with predicted sales now rising 7% as profits reach $2.48 per share. Kotick and his team might meet or exceed that forecast on Tuesday, but only if they're seeing a sustained increase in audience size, engagement metrics, and monetization across their biggest franchises.