Will Franchise Strength Aid Activision (ATVI) Q1 Earnings?

Activision Blizzard Inc. (NASDAQ:ATVI) is set to report first-quarter 2018 results on May 3.

The company beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 36.06%.

In the last reported quarter, the company’s non-GAAP earnings were 49 cents per share, which increased 36.1% from the year-ago quarter. Including GAAP deferrals, adjusted earnings of 94 cents per share matched the Zacks Consensus Estimate and increased 2 cents from the prior-year quarter.

Revenues (including deferrals) of $2.64 billion surpassed the Zacks Consensus Estimate of $2.61 billion. Excluding deferral revenues, Activision reported sales of $2.043 billion, up 20.2%. The top line was driven by strength in digital revenues, Overwatch, Call of Duty: World War II and Destiny 2.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Activision’s popularity is primarily driven by its well-known franchises, which will continue to fuel top-line growth. Call of Duty is one of the biggest growth drivers for Activision. Notably, Call of Duty: World War II was the top-selling console video game in 2017, globally.

In the last-reported quarter, Activision recorded 55 million monthly active users (MAUs) up 12% sequentially. This increase can primarily be attributed to Call of Duty: WWII and Destiny 2.

For the first quarter, the Zacks Consensus Estimate for Activision Publishing’s net revenues stands at $364 million, up 69.3% from the figure reported in the year-ago quarter.

The acquisition of King Digital Entertainment has also worked in favor of the company. King Digital had 290 million MAUs at the end of the last reported quarter, backed by Candy Crush.

For the first quarter, the Zacks Consensus Estimate for Kings’ net revenues is pegged at $520 million, up 9.7% from the figure reported a year ago.

Additionally, the company is strengthening its presence in the lucrative e-sports market. Notably, Overwatch League had a scintillating start with more than 10 million viewers watching the event in the first week of the inaugural season. We note that the launch of Overwatch League is driving viewership, corporate sponsorships and media coverage for Activision.

However, the growing craze for Epic Games’ Fortnite is an overhang on Activision as many analysts fear that engagement will decline due to this.

Also, higher adoption of free-to-play games and significant competition from the likes of Electronic Arts (NASDAQ:EA) , Take Two Interactive (NASDAQ:TTWO) and Glu Mobile (NASDAQ:GLUU) are concerns.

Activision Blizzard, Inc Price and EPS Surprise

Activision Blizzard, Inc Price and EPS Surprise | Activision Blizzard, Inc Quote

What Does Our Model Say?

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Activision’s Earnings ESP is +5.24% but it has a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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