Activision Blizzard Earnings: What to Watch
August 03 2017 - 6:29AM
Dow Jones News
By Sarah E. Needleman
Activision Blizzard Inc. reports second-quarter results after
the close of trading Thursday. The videogame publisher's shares are
up about 67% since the start of the year, driven by increasing
sales of high-margin digital goods that continue to lift the
industry.
Here are the key points to watch:
EARNINGS FORECAST: Activision is expected to report adjusted
profit of 30 cents a share, according to S&P Global Market
Intelligence.
Here's where it gets tricky. Analysts likely will ignore the
adjusted number as reported by Activision Blizzard, which the
company calls "redefined" and uses a new calculation as of a year
ago. Under that calculation, adjusted profit a year ago was 45
cents a share. Instead, analysts will calculate their own adjusted
figure using the older method; under that calculation, the
company's adjusted profit a year ago was 54 cents a share.
All of these adjusted numbers exclude certain items Wall Street
and the company don't consider a regular part of doing business.
Under generally accepted accounting rules, or GAAP, Activision
Blizzard reported net of 17 cents a share a year ago.
REVENUE FORECAST: Adjusted revenue is expected shrink 24% to
$1.22 billion from $1.61 billion a year earlier. Under U.S.
accounting rules, videogame companies defer some revenue from
online-enabled games. Total revenue a year ago was $1.57
billion.
WHAT TO WATCH:
TOUGH COMPARISON: Activision didn't release any blockbuster
games during the quarter, while a year ago it introduced the
team-based shooter "Overwatch," which went on to become a hit.
Wedbush Securities estimates the game yielded $380 million in sales
in a little over a month. The bank expects at least a $120 million
decline in revenue from retailers' restocking of older games such
"Destiny."
DIGITAL PADDING: Revenue from digital "extras" -- content
designed to enhance console and PC games already on the market --
have provided a critical cushion of sales for Activision Blizzard
and its peers during quarters without major launches. Wedbush
estimates a $30 expansion pack released in May for 2015's "Call of
Duty: Black Ops III" generated $84 million in sales. Still, the
sales aren't expected to make up for the lack of a hit game during
the quarter.
MOBILE UPSWING: Analysts at Sensor Tower Inc. believe revenue
from Activision Blizzard's mobile games rose at least 20% from a
year earlier to $500.2 million, driven mainly by growth in "Candy
Crush Saga." The analytics firm collects only in-game spending data
from the Alphabet Inc. and Apple Inc. app stores and doesn't
capture revenue from advertising.
BILLION-DOLLAR TEST: Activision Blizzard's King unit has been
testing ads in a handful of its games for the past year. Analysts
think ads could haul in as much as $1 billion in annual revenue
that previously didn't exist starting possibly as soon as next
year, and usually ask about it during the conference call with
executives. They will be listening for an update on how the
experiment, which involves advertisers such as Nestlé SA and Visa
Inc., is progressing.
DESTINED FOR FALL: It is unlikely Activision Blizzard will give
forecasts for sales of coming games. Still, analysts are eager to
get a sense of how the Sept. 6 launch of a sequel to "Destiny" is
shaping up. Wedbush estimates the original, which made its debut
nearly three years ago, sold roughly 14 million units.
NO 'OWL' REVENUE: Activision is building a professional esports
league around "Overwatch" that is slated to launch later this year.
Though the company recently announced it sold the rights to seven
teams, management said on past earnings calls that new revenue
streams expected to come out of the league haven't been factored
into its 2017 full-year guidance.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
August 03, 2017 06:14 ET (10:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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