Activision Blizzard (ATVI) is scheduled to report second-quarter earnings on Tuesday, Aug. 3, after the market closes. After soaring in 2020, the company's shares have barely budged year to date, currently down 2.5%, which could be a buying opportunity as we enter a busy season of new game releases. 

Is it smart to buy this stock ahead of the earnings report? Let's review where this top video game producer currently stands to find out.

Soldiers skydiving in a scene from a Call of Duty video game.

Image source: Activision Blizzard.

Low expectations for the second quarter

One reason for Activision's weak stock performance this year is the low expectations for growth in the near term. Game companies are up against difficult growth comparisons because of the spike in player engagement during the pandemic. Ubisoft Entertainment reported earnings results recently, posting a year-over-year decline of 20.5% in bookings (a non-GAAP measure of revenue), but Activision should fare somewhat better. 

For Q2, Activision Blizzard expects bookings to be $1.85 billion, down from $2.08 billion in Q2 2020. Call of Duty faces a difficult year-over-year comparison, as last year's launch of Warzone led to strong crossover sales of Call of Duty: Modern Warfare

In the Q1 earnings call, management said it planned to increase marketing this quarter around new content updates. This will pressure Activision's operating profit in Q2. Nonetheless, management expects to report an increase in adjusted earnings per share of 12.3% over the year-ago quarter. 

Investors should continue to watch operating margin, which jumped 6 percentage points in Q1, reaching a stellar 43% thanks to digital sales taking an increased share of overall sales. Management expects full-year operating margin to settle at 42%.  

New releases

While Activision doesn't expect to match 2020's bookings growth of 32%, management raised its full-year guidance last quarter. It now expects full-year bookings to reach $8.6 billion, representing year-over-year growth of 2.1% over 2020. Adjusted earnings per share are expected to reach $3.42 for a 6.5% increase. 

The expected growth in 2021 will depend heavily on new releases coming in the second half of the year, especially on the Blizzard side, which was the slowest-growing business segment last quarter. The 2021 release schedule includes World of Warcraft: Burning Crusade ClassicDiablo 2: Resurrected, and the mobile game Diablo: Immortal. There will also be a new premium Call of Duty release for console and PC. 

Should you buy the stock right now?

While it's impossible to know what surprises await investors when earnings are announced, Activision Blizzard has leading gaming brands and a pipeline of titles coming over the next few years to drive the next leg of growth. 

I would look at any drop in the share price after the upcoming earnings report as an excellent buying opportunity with the two Diablo games releasing this year and two huge launches in Diablo 4 and Overwatch 2 likely within the next few years. 

Moreover, investors might be undervaluing the company's growing cash pile. Trailing 12-month free cash flow reached $2.8 billion through the first quarter. The company ended Q1 with $5.9 billion in net cash on the books, which gives management plenty of options to reward shareholders. Activision already raised the dividend by 15% this year, but future dividend increases should follow with the company sitting on this much cash. 

Activision Blizzard is a solid long-term investment, but it might be best to wait until after earnings before buying shares just to avoid the potential disappointment of buying ahead of a post-earnings sell-off.