Why Activision Blizzard Inc. Popped on Wednesday

Guitar Hero Live, pictured here, will revive a long-abandoned Activision franchise. Image source: Activision.

What's happening: Shares of Activision Blizzard were up 13.2% as of 12:30 p.m. Wednesday, following the release of strong second-quarter results. Having gained 44% so far in 2015, the stock is currently exploring fresh all-time highs.

Why it's happening: In the second quarter, Activision continued to shift its distribution model away from traditional retail outlets and deeper into direct-download digital channels. Recurring payments for games sold in a subscription model are also displacing the regular sales model, where you'd buy a license once and then be able to play the game forever.

PC games are falling out of favor, recording an 18% revenue decrease year over year. Likewise, last-generation gaming consoles such as the Xbox 360 and PlayStation 3 reported 29% lower sales. On the other hand, online gaming sales rose 13% and next-generation consoles such as the Xbox One and PlayStation 4 delivered 131% higher sales. Mobile sales also rose strongly with a 13% improvement, but remain a minor part of Activision's business at just 5% of the company's total sales.

Taken together, the upshot of all these moving parts was that Activision's sales rose 15% from the year-ago period, landing at $759 million. This figure is adjusted to account for multi-year subscriptions and other deferred revenues. On the bottom line, adjusted earnings more than doubled to $0.13 per diluted share.

Activision beat its own guidance on both counts, and also exceeded analyst estimates by a wide margin.

Looking ahead, the company underscored upcoming big-ticket releases such as new titles in the Skylanders, Call of Duty, and Guitar Hero franchises. Coupled with the surprisingly strong second-quarter performance, management raised its full-year adjusted revenue guidance by 4% to $4.6 billion, ahead of current analyst projections of $4.5 billion. Earnings guidance was raised from $1.20 per share to $1.30 per share, leaving analysts clustered just above the old guidance target.

For the third quarter, Activision's newly issued earnings guidance was in line with analyst views at $1.014 per share, but the $930 million revenue target was a 6% surprise.

"Our strategic focus on expanding our franchise portfolio with captivating and original new intellectual property, innovating on new platforms, and expanding into new geographies is reflected in our results," said Activision CEO Bobby Kotick in a press statement.

The article Why Activision Blizzard Inc. Popped on Wednesday originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends and also owns shares of 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.

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