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Activision (ATVI) to Report Q2 Earnings: What's in Store?

Zacks Equity Research

Activision Blizzard ATVI is set to report second-quarter 2019 results on Aug 8.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 24.6%.

In the first quarter, Activision reported non-GAAP earnings of 78 cents per share that remained flat year over year.

Net revenues on a GAAP basis declined 7.1% year over year to $1.83 billion. However, the figure outpaced the company’s guidance of $1.72 billion. This better-than-guided performance was due to strict operating discipline.

For the second quarter, Activision anticipates non-GAAP earnings of 35 cents and revenues of $1.32 billion.

The Zacks Consensus Estimate for second-quarter earnings has remained steady at 26 cents over the past seven days. The figure indicates a decline of 36.6% from the year-ago quarter’s reported figure.

Notably, the consensus mark for revenues is pegged at $1.19 billion, indicating a decline of 13.8% from the year-ago quarter’s reported figure.

Activision Blizzard, Inc Price and EPS Surprise

Activision Blizzard, Inc Price and EPS Surprise

Activision Blizzard, Inc price-eps-surprise | Activision Blizzard, Inc Quote

Factors to Consider

Activision had no major new game releases in the second quarter. Moreover, intensifying competition in the video game space from the likes of EA, Take-Two Interactive and Gluu Mobile is likely to hurt top-line growth in the seasonally slow second quarter.

Additionally, increased operating expenses, particularly selling & marketing, are likely to keep margins under pressure.

However, popularity of Activision’s franchises like Call of Duty, Overwatch and Hearthstone may boost in-games spending, thereby driving top-line growth.  

Notably, in April, Blizzard division released its latest Hearthstone expansion Rise of Shadows.

Moreover, expanding content and updates to Call of Duty: Black Ops 4 are expected to positively impact user engagement levels, thereby driving revenues. The seasonal release in April, Operation Spectre Rising, introduced free new content and updates across the game.

Further, Activision released Crash Team Racing Nitro-Fuelled in June. Per management, the game received tremendous response from users.

Another division, King continued to deliver innovative features across its portfolio. It is likely to benefit from Candy Crush Friends and King advertising revenues.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Activision has a Zacks Rank #3 and an Earnings ESP of -1.77%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to deliver an earnings beat this quarter:

Callaway Golf Company ELY has an Earnings ESP of +6.40% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lululemon athletica LULU has an Earnings ESP of +0.97% and a Zacks Rank #2.

BrightView Holdings BV has an Earnings ESP of +0.86% and a Zacks Rank #2.

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