Destiny 2' Results in Focus When Activision Blizzard Reports 3Q--Earnings Preview

By Sarah E. Needleman Features Dow Jones Newswires

Activision Blizzard Inc. reports third-quarter results after the close Thursday, a day before releasing a new installment in its hit "Call of Duty" videogame franchise.

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The publisher's shares are up nearly 80% since the start of the year, driven by rising sales of high-margin digital content across the industry. Here are the key points to watch:

EARNINGS FORECAST: Activision is expected to report adjusted profit of 49 cents a share, according to S&P Global Market Intelligence, down from 52 cents a year ago. Those numbers exclude items Wall Street thinks aren't a regular part of business. Under generally accepted accounting principles, the company expects 9 cents a share in profit.

REVENUE FORECAST: Adjusted revenue is expected to climb 6.7% to $1.74 billion, according to S&P Global Market Intelligence. In its prior earnings report, the company said it expected GAAP revenue of $1.39 billion, down 12%.

WHAT TO WATCH:

--DESTINED TO GROW: Activision Blizzard released the multiplayer shooter "Destiny 2" in early September and it became the month's top-selling game in the U.S., according to market research firm NPD. By comparison, the company only put out a small expansion pack for the Destiny franchise in the year-ago period. Analysts believe revenue rose significantly as a result.

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--BEEFY EXTRAS: An expansion for "Hearthstone" and a summer event for "Overwatch" likely provided a lift to revenue by driving up in-game spending, analysts said. But such boosts likely will be offset, given the year-ago quarter included a large "World of Warcraft" expansion.

--STILL CRUSHING IT: Revenue from Activision Blizzard's mobile games rose at least 51% to $601.5 million, driven mainly by the 2012 game "Candy Crush Saga," estimates Sensor Tower Inc. The analytics firm collects in-game spending data from Alphabet Inc.'s and Apple Inc.'s app stores, but doesn't capture revenue from advertising. It estimates Candy Crush made $307 million, more than double last year's third-quarter haul.

--ADVERTISING WAIT: King, the Activision Blizzard unit that makes Candy Crush, has been talking since last spring about adding advertising to its games. So far, it has only experimented with different approaches, but analysts think the move could bring in as much as $1 billion in yearly revenue when it kicks into full gear. Analysts will be listening on the earnings call for an update as to when that will happen. "At some point we need to hear Activision saying it's gone from test-and-learn mode to revenue-generating mode," Piper Jaffray analyst Mike Olson said.

--ESPORTS MOMENTUM: During the quarter, Activision said it sold the rights for five more teams to compete in the first season of its Overwatch esports league, bringing the total to 12. The new league, built from scratch, is expected to kick off with preseason competition Dec. 7 and go into full swing in January. The teams sold for $20 million each, according to people familiar with the matter, but Activision Blizzard previously said it wouldn't factor that money into its guidance for the third quarter. The company has, though, factored team sales into its full-year guidance and such revenue is expected to start showing up in its fourth-quarter results.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Corrections & Amplifications

This item was corrected at 2:50 p.m. ET to show that research firm Sensor Tower Inc. estimates Activision Blizzard Inc.'s "Candy Crush Saga" made $307 million in revenue in the third quarter, not $143 million.

Research firm Sensor Tower Inc. estimates Activision Blizzard Inc.'s "Candy Crush Saga" made $307 million in revenue in the third quarter. " 'Destiny 2' Results in Focus When Activision Blizzard Reports 3Q -- Earnings Preview," published Nov. 2, 2017, at 7:14 a.m. ET, incorrectly stated the estimate was $143 million in the seventh paragraph. (Nov. 2, 2017)

(END) Dow Jones Newswires

November 02, 2017 15:04 ET (19:04 GMT)