Activision Blizzard Earnings: What to Watch

By Sarah E. Needleman Features Dow Jones Newswires

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.

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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.

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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)