Activision Blizzard Earnings Preview: Destiny 2 And Upcoming Game Launches In Focus

Gaming and entertainment company Activision Blizzard, Inc. ATVI reports third-quarter earnings after the market closes on Thursday, Nov. 2. It was a quiet quarter as far as game releases go and Destiny 2’s September release was the largest planned. On the horizon, the next iteration of the Call of Duty franchise is slated to launch this weekend.

Based on initial reports from industry-tracking firm, The NPD Group, Destiny 2 got off to a strong start and was the top-selling game in the U.S. September. NPD analyst Mat Piscatella said “With one month of sales, Destiny 2 also becomes the best-selling game of 2017 year to date, and the third best-selling game of the 12-month rolling period ending September 2017, trailing only Call of Duty: Infinite Warfare and Battlefield 1.” A few weeks of that launch will be included in tomorrow’s report, although ATVI rolled out the PC version of the game in late-October so those results won’t be seen until next quarter’s report.

Beyond the performance of new game launches, the company’s audience and engagement metrics are a common focus for analysts. ATVI reported it had 407 million monthly active users (MAUs) during the second quarter, a drop from 431 million reported in the first quarter. The Blizzard segment grew 38% year-over-year to 46 million MAUs, but the Activision and King segments declined to 47 million and 314 million MAUs, respectively.

On the engagement side, ATVI reported that Blizzard had a record amount of time spent by players, partly driven by growth in seasonal Overwatch events. Management has indicated that driving deeper engagement is part of its focus on providing more opportunities for player investment, which it considers one of its “three strategic pillars”. In the second quarter, the company said it generated nearly $1 billion of in-game revenue.

Other areas analysts might be looking for more information is management’s focus on monetizing King’s games through advertising efforts, as well as the upcoming launch of the Overwatch League, the first major global professional esports league with city-based teams. 

FIGURE 1: GAMING STOCKS YTD PERFORMANCE. So far this year, gaming companies have significantly outperformed the S&P 500 (SPX). The chart above shows the year-to-date performance for Activision Blizzard (ATVI), as well as other major gaming companies Take-Two Interactive Software Inc TTWO, graphed as the pink line, and Electronic Arts Inc. EA, graphed as the teal line. Chart source: thinkorswim^® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Activision Blizzard Earnings and Options Trading Activity

For the third quarter, ATVI is expected to report adjusted earnings of $0.50 per share, down slightly from $0.52 in the prior-year quarter, on revenue of $1.74 billion, according to third-party consensus analyst estimates. The company has beat earnings expectations in the past six quarters and, over the past 30 days, six analysts have revised their earnings estimates upwards.

Around the upcoming earnings release, options traders have priced in about a 4.5% potential share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term trading at the November 3 expiration, calls have been active at the 64 and 65 strike prices, while puts have been active at the 63 and 65 strikes.  As of this morning, the implied volatility sits at the 81^st percentile.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Later today, the Federal Open Market Committee will release a statement as it wraps up its second to last meeting of the year, potentially providing some more information about the Fed’s views on the overall economy as President Trump mulls over candidates to replace Fed Chair Janet Yellen. On the earnings front, tech mega-cap Apple inc. AAPL reports earnings after market close on Thursday, Nov. 2. And over the next two weeks, quite a few of the brick-and-mortar retailers including Macy’s Inc M, Wal-Mart Stores Inc WMT, Target Corporation TGT and Home Depot Inc HD report results.

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