Activision Had A 'Huge, Huge Revenue Beat,' But Is A Correction Coming?

Activision Blizzard, Inc. ATVI beat earnings with a Q2 EPS of $0.13 (versus the Street estimate of $0.08) and sales of $1.04 billion. The firm raised its CY15 sales estimates from $4.425 billion to $4.6 billion, topping the Street's current estimate of $4.47 billion. Activision also raised its CY15 EPS to $1.30 versus $1.23. "They had a whopper," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga. "Huge, huge revenue beat. They have a really nice multi-pronged model." Despite his praise, Udall referred to Activision as a "weird stock" that almost provides a "lesson in portfolio management." "Here's the biggest problem with the stock: it tends to sit sideways and be very flat and go nowhere," he said. "It doesn't generate very many trades. Almost all the trades are catalyst-driven trades around the time of an earnings report." Udall said analysts have to take on a lot of risk because the stock could either go up or down on earnings, but it won't move on much else. "This is one where they've been hitting and the earnings reports have been hitting," he said. "But this is a tough stock to trade because you will literally have three- to four-month periods where the stock doesn't move more than $1.50. Maybe $2 at the most, so it's hard to generate trades from it. It's kind of a quiet stock away from earnings."

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Udall "can't believe how high that stock is trading now," but he said it belongs to another group that has not corrected yet. That group includes Electronic Arts Inc. EA and Take-Two Interactive Software, Inc. TTWO, both of which are trading up this year. "We'll see if that can continue," Udall added. "The next big title is probably going to be 'Star Wars'-related. This could put a crimp in some of the other companies." All of the new "Star Wars" games -- including "Star Wars: Battlefront" -- are being developed by Electronic Arts. As for Activision, Udall is looking ahead to the next generation. "Imagine what these guys could do if we get a VR-type system in the future," he said.

More Durable Than Zynga

Global Equities Research analyst Trip Chowdhry had high praise for Activision. "I think this is a durable company," Chowdhry told Benzinga. "It's not like Zynga, which was built on concepts. It's a durable business. It's not a fly-by-night like many companies that came into being [recently]." Chowdhry said a correction could happen but believes that would offer a buying opportunity to investors. Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.