Home Investment Activision Blizzard Q2 Earnings Preview: Game On

Activision Blizzard Q2 Earnings Preview: Game On

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Activision Blizzard (ATVI) is scheduled to report second-quarter 2021 earnings on August 3, after market close.

The company is an entertainment conglomerate that develops and publishes interactive video content and services around the world.

Over the past year, shares of the company were down 1.4%, and are now trading above $83. A solid Q2 results might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting.

Q2 Expectations

For Q2, Street expects Activision to report adjusted EPS of $0.75 and revenues of $1.89 billion.

Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $0.80 per share. (See Activision Dividend Date and History on TipRanks)

Activision’s Prior Quarter Snapshot

In the last-reported first quarter, Activision delivered strong growth across its main franchises, shrugging off the challenges presented by the pandemic.

Total net revenues came in at $2.28 billion, an increase of 27.37% year-over-year compared to $1.79 billion in Q1 2020. Net revenues from digital channels totaled $2.01 billion.

Diluted EPS increased to $0.79 from the $0.65 share price reported in Q1 2020. Activision Blizzard operating cash flow soared to $844 million, from $148 million in the year-ago period. Net bookings were $2.07 billion, as in-game net bookings totaled $1.34 billion.

Factors to Note

Given the re-opening of various regions, Activision Blizzard is well-positioned to continue to deliver strong results in the upcoming quarter. Those results will likely be driven by growth initiatives in the company’s largest franchises and a strong portfolio of games.  

Moreover, as a result of the shelter-from-home trend, customers all around the world turned to gaming for amusement and connection, which is predicted to have aided revenue growth in the to-be-reported quarter.

Let’s look at a few key indicators to see how this video game company is anticipated to perform this quarter.

The company conducts its business through the following three segments: Activision Publishing Inc. (Activision), Blizzard Entertainment Inc. (Blizzard), and King Digital Entertainment (King).

The Activision segment, which develops and sells video games, is the company’s biggest revenue and profit generator. Revenues of the segment increased 72% year-over-year to $891 million in Q1. The division had 150 million mobile monthly active users (MAUs), up 47.1% year-over-year.

This segment’s growth is expected to have continued to be driven in the upcoming quarter by the popularity of its franchises. Its franchises have provided Call of Duty (COD) and Warzone in-game revenues, strong premium sales, and Call of Duty Mobile. Also, the growing popularity of Call of Duty: Black Ops Cold War, a sequel to the original Call of Duty: Black Ops game, is expected to have attracted gamers in the to-be-reported quarter. Activision expects net bookings of $1.85 billion for the second quarter.

Next is Blizzard. This segment develops interactive software products and entertainment content. Blizzard’s key product franchises include World of Warcraft, Hearthstone, Diablo, and Overwatch.

The segment is likely to have fared well, thanks to the Warcraft franchise’s robust growth. During the second quarter, the company released the latest expansion to World of Warcraft, named World of Warcraft Expansion: Burning Crusade Classic. The expansion is expected to add Monthly Active Users (MAU’s) in the second quarter.

Coming to King, this segment develops and publishes interactive entertainment content and services, particularly for the mobile platform. The category is anticipated to have grown as a result of the growing popularity of its main product line, Candy Crush.

Notably, last quarter, Candy Crush Saga was the best-selling app franchise in the United States, reflecting the game’s enormous popularity among consumers.

Investors can take note that video game spending has remained steady during the second quarter. Per VentureBeat, which cited NPD data, despite a slight dip of 2% in U.S. video game sales in April, consumer spending on video games increased 3% and 5% year-over-year in May and June, respectively. This should have been beneficial for Activision Blizzard.

In the last earnings call, Activision Blizzard CEO Bobby Kotick sounded positive about performing well in the near future. Kotick said, “Our continued overperformance enables us to raise our outlook for the full year.”

Management expects to see non-GAAP revenue of $2.14 billion and EPS of $0.91 for Q2. For the full year, net revenues should total $8.37 billion with earnings per share of $3.42.

Analyst Recommendations

Ahead of the second-quarter earnings announcement, Wedbush analyst Michael Pachter reiterated a Buy rating on the stock, with a price target of $125. This implies 49.5% upside potential to current levels.

Pachter expects Activision to deliver “outsized EPS growth” in the upcoming quarter, driven by the company’s “strong pipeline,” strength in King’s business, “accelerating mobile” growth, and “retaining new and re-engaged players.”

Another analyst, Benjamin Soff of Deutsche Bank, reiterated a Buy rating on the stock but decreased the price target to $115.00 from $118.00. This implies 37.5% upside potential to current levels.

The analyst remains optimistic about the fundamentals of the video game industry.

Consensus among analysts is a Strong Buy based on 16 unanimous Buys. The average ATVI price target of $118.69 implies 41.9% upside potential from the current levels.

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Activision, with 7.5% of investors who hold portfolios on TipRanks increasing their exposure to ATVI stock over the past 30 days.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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