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What to Watch When Activision Blizzard Reports Earnings

By Demitri Kalogeropoulos - Jan 31, 2021 at 7:01AM

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Call of Duty likely set some impressive records over the holiday quarter.

Investors are looking forward to Activision Blizzard's (ATVI) upcoming earnings report set for the first week of February. Shareholders are excited because the video game developer enjoyed soaring demand for its products through most of 2020. While that spike softened as COVID-19 social distancing efforts relaxed, Activision still managed to keep its massive gamer base engaged, at least through late September.

In a few days, Activision CEO Bobby Kotick and his team will reveal whether that positive momentum held up through the switch to the next generation of consoles in recent months, and whether Activision again outperformed management's short-term growth targets. Let's take a closer look at the report slated for February 4.

A young couple play video games together.

Image source: Getty Images.

Beating expectations

Activision has a habit of beating its quarterly forecasts, most recently with Q3 sales landing at $1.95 billion compared to their $1.8 billion prediction. Wall Street is betting on another strong showing in the upcoming report, projecting that sales will land at $2.8 billion compared to the $2.7 billion that management forecast in late October.

Looking beyond that headline figure, it's important that Activision continue boosting its audience size and engagement metrics across its portfolio, as it has for the past few quarters. The big question for investors is how well the latest Call of Duty title release did. Black Ops Cold War was introduced in November to the largest universe of CoD gamers yet. That huge base likely ensured that the game dominated global sales charts for the year, perhaps setting new records for the franchise.

Monetization plans

Activision has been relying more on free-to-play games of late, but investors are still hoping to see significant earnings growth for the holiday quarter. The Call of Duty: Warzone title generates profits through microtransactions and by lifting demand for the premium gaming content within the franchise. Candy Crush is being supported by more advertising, too.

ATVI Operating Margin (TTM) Chart

ATVI Operating Margin (TTM) data by YCharts

Overall, look for these successes to continue pushing margins higher in Q4, with adjusted earnings likely reaching $0.90 per share. Success on this score will give Kotick and his team flexibility as they aim to continue flooding the market with new content.

Looking ahead

We'll get a first look at management's fiscal 2021 outlook, which likely will address challenges presented by the next-gen gaming switchover and the difficulty duplicating last year's results, which were driven by unusually high gaming demand during pandemic lockdown. These challenges explain why Wall Street is predicting that sales will barely rise this year compared to 2020's expected 28% surge.

There's a wide range of potential results that Activision might actually achieve, though. Its single best asset in the battle will be a steady stream of quality content that its development teams will release in franchises like Call of Duty, Hearthstone, and World of Warcraft.

These launches will benefit from releasing onto the biggest platform that Activision has ever had. The long-term outlook for the gaming industry remains bright, even if 2021 shows a slowdown from last year's surge. As a result, investors should be happy to buy and hold Activision stock.

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