Shares of the video-game giant opened lower this morning, even though it raised its outlook for the recently concluded first quarter and all of 2010.
Don't blame jaded gamers. There are two good reasons Mr. Market isn't wowed by the news, but let's get to the guidance itself. Activision Blizzard claims it's tracking ahead of its original forecast of a profit of $0.02 a share and $525 million in revenue on a non-GAAP basis for the quarter ended in March. It's also bumping its adjusted profit target for all of 2010 from $0.70 a share to $0.72 a share.
Now let's get to the first reason for the collective yawn. Analysts must have boned up on their cheat codes, because they were already waiting for Activision Blizzard at its new targets. The consensus earnings estimate was already calling for a $0.72-per-share showing. Wall Street's first-quarter stab was calling for net income of $0.03 a share and $553.1 million on a non-GAAP basis.
In short, investors are saying, "Tell me something that I didn't know, AB."
The other reason for the small dip at today's open is that the company is hinting at bottom-line softness for the second quarter, which began two weeks ago.
"Certain operating expenses previously planned for the March quarter will now be incurred in the June quarter," reads the investing alert. Part of the first quarter's success is also being credited to the Call of Duty: Modern Warfare 2 map pack that was originally supposed to ship out this quarter.
Investors know that better-than-expected profitability for the first quarter will probably be undone in the second quarter. Activision Blizzard is expected to be right at the $0.72-per-share mark for non-GAAP earnings.
Activision Blizzard's stock is trading at an attractive earnings multiple in the teens, but this isn't the heady bounce that the company once figured would come after earning just $0.69 a share last year. Three months ago, analysts were banking on a profit of $0.76 a share in 2010.
The company isn't alone, either. Wall Street had higher profit targets for rivals Electronic Arts
Video-game software and hardware sales have fallen during most months over the past year. The recession has hurt, but many other consumer-facing industries have bounced back. Some will argue that 2008 was a tough act to follow, as Activision's Guitar Hero and Viacom's
However, you also have new outlets such as Facebook and Apple's App Store for gaming. The casual games are no match for console titles, but lower price points and barriers have opened up commercial development to many smaller studios willing to work for ad-sharing revenue. For casual gamers, it's more about the discretionary hours than the discretionary income.
As the class of the industry, Activision Blizzard should be the first major software company to bounce back. It's just not happening yet. Going by this morning's report, Activision Blizzard is simply jogging in place.
What will it take for the video-game industry to turn itself around? Share your thoughts in the comments box below.