Activision Blizzard (NASDAQ:ATVI) will release its third-quarter earnings results in just a few days, and investors have high expectations for that report. Sure, the video game developer is likely to announce weaker growth versus the fiscal second quarter, which saw peak social-distancing efforts around the world. But Activision should still reveal some eye-popping engagement metrics while giving investors a clear window into the broader 2020 outlook.

With that bigger picture in mind, let's zoom in on a few trends to watch for in the report, slated for Thursday, Oct. 29.

Two young adults playing console video games.

Image source: Getty Images.

User engagement

The fiscal second quarter will be a tough act to follow, considering that Activision gained 100 million gamers, year over year, during that blockbuster period for at-home entertainment. While growth came from each of its three main divisions, Activision, King Digital, and Blizzard, the biggest winner by far was the Call of Duty franchise. That game benefited from surging demand for the new Warzone brand and set records for engagement and community size.

Look for the company to announce similarly strong results this quarter, with sales rising to $1.8 billion compared with $1.65 billion a year ago. CEO Bobby Kotick and his team will discuss the underlying trends driving that growth, too, including audience size and engagement. They said back in early August that players were dedicating more hours than ever to the Call of Duty franchise, and it will be interesting to see whether those trends held up as economies around the world reopened following coronavirus outbreaks.

Paying up for quality content

Just because many of Activision's hit titles are free doesn't mean the company is struggling to generate profits. In fact, the King digital unit in Q2 posted its highest operating margin since the buyout thanks to advertising sales and rising in-app purchases. Activision benefited from a surge in demand for its premium Call of Duty: Modern Warfare title as players upgraded to that product after being exposed to the franchise through Warzone.

ATVI Operating Margin (TTM) Chart

ATVI operating margin (TTM) data by YCharts. TTM = trailing 12 months.

Management predicted last quarter that operating margin would land at 42% of sales overall in Q3, or roughly even with last quarter's result. That performance would translate into earnings rising to $0.64 per share this quarter, up from $0.32 a year ago.

Looking ahead

With a bit more than three quarters of the year behind it, Activision will be able to offer a detailed forecast for the full year. Three months ago, executives were cautiously optimistic that their gains in audience size, engagement, and monetization could all be maintained even as people resumed more normal lives that involved less at-home entertainment. Those headwinds might be amplified by challenges like a stubborn recession and the switch to next-generation consoles, they admitted, but growth could still stay materially stronger, at least into early 2021.

A lot will depend on the reception of the newest Call of Duty installment, Black Ops: Cold War, set for release in mid-November. That video game has an inside shot at pushing the franchise to the top of the global sales list yet again, given that a record level of gamers have been interacting in the Call of Duty ecosystem in the months leading up to its launch.

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