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Activision Blizzard, Inc. (NASDAQ: ATVI) reports earnings on Thursday, Aug. 4, and after an incredible first quarter the expectations for earnings are high. Let's set out what investors should be looking for to determine how Activision Blizzard is making its way through 2016.
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What Activision Blizzard expects
The first bar to measure second-quarter earnings against is Activision Blizzard's own guidance. Below are the key guidance figures management gave investors during the first quarter's earnings announcement.
Data source: Activision Blizzard Q1 2016 earnings release.
Don't be surprised if there are adjustments made for the falling British pound, which management expected to be at US$1.45 per GBP for guidance. The rate is down to US$1.32 per GBP as of this writing, so any sales in Great Britain will look smaller than they did a quarter ago.
And while financials are very important, there are a few things to watch outside of just the financial results.
Engagement, engagement, engagement
You can't make money on video games if no one is playing. Engagement is the key to making the whole business run, and that's something investors should be watching closely.
Last quarter, management said that Activision monthly active users (MAUs) grew 10% year over year to 55 million, Blizzard grew 23% to 26 million MAUs, and King Digital grew 3% quarter over quarter to 463 million MAUs. An incredible 42 billion hours were spent engaging with the company's games in the previous 12 months, which should grow in the second quarter given the addition of King Digital.
If those engagement figures continue to grow at double-digit rates year over year, we will see the results flow to the bottom line eventually. Even if financials fall short of estimates, if engagement is up it's good for the business long-term.
What's the status of e-sports?
One of the growth platforms Activision Blizzard is leading is e-sports. People watching other people playing video games is becoming big business, and Activision Blizzard is a leader in the industry. The regional final of the Call of Duty World League was completed earlier this month, and the prize purse of the tournament was a whopping $3.5 million. That shows that there's big money in e-sports already.
Expect to hear more engagement figures from the e-sports business. And again, increasing engagement in e-sports will drive game usage, which drives sales, creating a virtuous loop for Activision Blizzard.
Can the momentum continue?
Activision Blizzard is on a string of great earnings reports, driven by hit games and savvy acquisitions like King Digital. On Thursday, investors will see if that string continues, but be sure to keep an eye on the engagement figures -- sometimes revenue and earnings don't tell the whole story in the video game business.
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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.