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Activision & Zynga set to report but not all game makers will share in the fun

Electronic Arts (EA) kicked off earnings for the gaming stocks last week, posting EPS that surpassed the Estimize consensus, but missing on revenues. Activision Blizzard (ATVI) is up next, out with Q2 results Tuesday after the bell.

Currently the Estimize community expects the company to report EPS of $0.12, 3 cents better than the Wall Street expectation and 5 cents better than company guidance. This would mean year-over-year growth of 100%. Similarly, on revenues, Estimize is looking for $675M vs. the Street’s $666M and guidance of $650M.

In terms of their products, Activision Blizzard has a few releases in the pipeline. As revealed at Comic Con in early July, a World of Warcraft movie is currently in production. Also, the newest iteration of the popular Call of Duty series, Call of Duty Black Ops 3, is scheduled to be released sometime in the upcoming months.

Activision also has a heavy pipeline for the first half of 2016 which is why many analysts expect the full year to be the most profitable in the company’s history. Early 2016 releases include the next StarCraft 2, the next World of Warcraft expansion and Overwatch's commercial release. Recent additions to the board of directors is also hoped to bring about valuable insight.

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Mobile gaming studio, Zynga (ZNGA), is also out with results later this week. Estimize is looking for EPS of -$0.01 as compared to Wall Street expectations of -$0.02. Revenues are pegged to come in at $172M vs. the Street’s $157M.

Unlike traditional video game producers such as Activision Blizzard which charge upwards of $50 for a game, mobile games operate on a freemium model, relying on up-selling users on frequent inexpensive micro-transactions.

Not only do very few users actually pay to play, but the mobile gaming industry hoped that users gained from one big hit could be rolled over to the next popular game.

Companies like Zynga and King Digital (KING) are finding that isn’t easy to do, with high costs to produce new games, most of which end up being flops.

The gaming space is a hits business, one hit could drive years of profitability for a game studio. Zynga’s most popular production, Farmville, hit a peak of 80M users in 2010, and has been on the decline ever since as they struggle produce another popular game. And the other thing in a freefall ... their stock. Since IPO-ing in late 2011, and beating their initial earnings expectations in Q1 2012, the stock peaked at $14.69 and has fallen over 80% since then.

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