Activision Blizzard (NASDAQ:ATVI) will report its first-quarter earnings on Tuesday, May 5, after the market close. Activision's share price has outperformed the broader market this year as investors anticipate that social distancing practices during the COVID-19 outbreak will lead to strong sales for the quarter. 

The company hasn't updated the guidance it previously issued during the fourth-quarter earnings call, which seems to suggest that the first quarter is tracking on schedule. With that in mind, here's what I'll be watching most closely when Activision reports next week.

A young girl playing a video game on a PC.

Image source: Getty Images.

Will the company beat its guidance?

Starting with the company's guidance, Activision Blizzard is calling for revenue to come in at $1.64 billion, which would be down from the year-ago quarter's $1.825 billion. Net bookings, a non-GAAP (adjusted) measure of revenue that includes sold-in digital sales, is expected to be $1.275 billion. That's up slightly from the year-ago quarter, which reflects the momentum in the Call of Duty franchise and other content releases during the quarter. 

Management is calling for earnings per share of $0.55 on a GAAP basis and $0.66 on an adjusted basis. Investors should pay more attention to the adjusted number, as that's the measure that draws attention from analysts. In the year-ago quarter, Activision reported adjusted earnings of $0.78 per share.

There are good reasons to expect that Activision Blizzard will beat its guidance. First, the company has surpassed its outlook for the last four quarters. Additionally, Call of Duty: Warzone, a new free-to-play battle royale game, launched in March and has already gained more than 50 million players. In the game, players can spend money on a battle pass that unlocks additional content. 

A report from SuperData showed that March sales hit a record of $10 billion spent on digital games. That should bode well for the company -- CEO Bobby Kotick was on CNBC earlier this month and mentioned that most of Activision Blizzard's games were experiencing record levels of engagement

Is new content development still on schedule? 

With the stock drifting higher over the last month, investors are already anticipating a strong quarter, so it will be more important what management says about the rest of the year. 

One thing analysts will likely want to know during the question and answer session on the conference call is whether there's been any disruption to the production schedule as a result of the pandemic. Kotick discussed this briefly on CNBC a few weeks ago. He said that they haven't had the same work-from-home challenges that other companies might be experiencing. Activision has employees across different countries who collaborate on software development. 

While Kotick said it's too early to tell what the full extent of the economic shutdown will be, he said, "most of the things we have in production and development are on track for now." That was during the CNBC interview in mid-April. 

Activision has encouraged employees who are working from home to upgrade to the highest speed broadband service, which is paid for by the company. Kotick also said the company had allowed the people working on software, such as art and animation work, to take computer equipment home. 

One upcoming release that analysts may ask management about is the next Call of Duty installment, which comes out every fall. This is the only game that gets an annual release. Most of the company's revenue comes from in-game spending (e.g., the battle pass for Warzone). 

Another essential title that could be impacted, depending on the extent that stay-at-home mandates impact production, is the upcoming World of Warcraft expansion, Shadowlands. There is not a firm release date yet, but the product page on Blizzard's website says it will launch on or before Dec. 31, 2020. The expansion retails for $39.99 with deluxe editions costing up to $79.99. World of Warcraft is a subscription-based online title that comprises a significant portion of the company's revenue each year. 

Other games like Overwatch receive updates throughout the year with seasonal events and in-game improvements that add new features and improve the gameplay. Investors should look out for updates about how the COVID-19 crisis has impacted ongoing work across the company's various titles.

2020 should be a strong year for gaming

Regardless of production issues that pop up in the short term, this growth stock is looking strong. Many of these popular titles have online multiplayer modes that allow players to connect with friends online to play together. The ability to offer players a social experience in this current environment should attract many gamers and translate to a good quarter.

On CNBC, Kotick said they have seen old and new players getting engaged with the company's games recently. It will be important to hear management's thoughts about how that new level of engagement will influence the rest of the year and beyond.