ATVI Earnings Preview: How’d New Game Launches Do in Q4?

Gaming company Activision Blizzard Inc. (ATVI) reports Q4 earnings after the closing bell on Thursday, Feb. 8. Here’s a look at what might be expected.

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Activision Blizzard (ATVI) reports earnings after the closing bell today, Feb. 8. In 2017, ATVI outperformed the S&P 500 (SPX) and the Nasdaq 100 (NDX) by a wide margin, ending the year up 72.82%, compared to 18.42% for the SPX and 30.24% for the NDX.

ATVI has beat on the bottom line in seven out of the past eight quarters and it has beat on the top line in six of them. Over the course of 2017, management raised their outlook in every quarter after reporting better-than-expected results.

For the fourth quarter, the company is expected to report adjusted earnings per share of $0.94, up two cents compared to the prior-year quarter, on non-GAAP revenue of $2.61 billion, according to third-party consensus analyst estimates.

There was a lot going on in Q4 this year. Historically, it has been the company’s busiest quarter, boosted by holiday shopping and game launches ahead of the holidays. Two of the biggest recent launches were Destiny 2 in September, which was also released on PC for the first time in October, and Call of Duty: WWII in November.

Call of Duty: WWII was the top-selling video game in December and all of 2017 while Destiny 2 was the third top-selling video game in 2017, according to the NPD Group, an industry-tracking firm. ATVI has already announced that its newest Call of Duty game topped $500 million in sell-through worldwide over the course of its three-day opening weekend and surpassed $1 billion in sell-through worldwide, but investors and analysts might get a better idea of the new games’ performance, as well as other in-game content releases during the quarter, on today’s earnings call. 

In addition to game performance, analysts commonly focus on audience and engagement metrics since ATVI generates a large portion of its revenue from in-game purchases. In Q3, ATVI reported the average player was spending 50 minutes per day in games, in-game purchases had generated more than $1 billion in revenue and that the company had 384 million monthly active users overall, largely comprised of the 293 million monthly active users in its King segment.

Another area analysts are likely to dig into this quarter is the company’s focus on e-sports. Management has said it views e-sports as a major growth initiative and the first season of its new Overwatch League, a global professional e-sports league with city-based teams, kicked off on Jan. 10. More than 10 million viewers tuned in for the league’s opening weekend and ATVI has recently announced several major sponsors including HP, Intel, Toyota, T-Mobile and Sour Patch Kids. 

Activision Blizzard (ATVI) stock chart since start of Q4

ATVI SINCE START OF Q4.

When ATVI last reported quarterly results on Nov. 2, shares opened up at $66.87 the next day, but they ended up dropping to close at $63.20 that day and dropped the following two days. The stock recently hit a new all-time high of $74.94 on Jan. 31, although shares have pulled back a bit amid all of the choppy trading over the past week. The bottom chart shows implied volatility for the stock. Chart source: thinkorswim® from TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Activision Options Trading Activity

Around ATVI’s upcoming earnings release, options traders have priced in about a 6.4% potential share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is at the 91st percentile as of this morning. This data was pulled at 9:30AM ET and could shift depending on trading activity leading up to the report.

With only a day left until the Feb. 9 weekly expiration, there hasn’t been a whole lot of trading activity there. At the Feb. 16 monthly expiration, calls have been active at the 70 strike price while puts have been more active at the 65 and 67.5 strike prices.

Across most of the other expirations, there hasn’t been a whole lot of activity that stands out. Overall during yesterday’s session, volume for calls and puts was almost the same, with 7,483 calls and 7,426 puts trading hands.

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

It’s been an interesting week with choppy trading and a major spike in volatility, adding to the already heightened volatility typically seen around earnings season. Earnings season is starting to die down over the next few weeks, however, there’s still some major companies left to report. Some of the big names on tap next week include PepsiCo (PEP), Coca-Cola (KO), Kraft Heinz (KHC), Deere (DE), Applied Materials (AMAT) and Cisco Systems (CSCO).

There’s also a few economic reports to consider keeping an eye on that are scheduled for release next week: The Consumer Price Index and Retail Sales for January on Wednesday, Feb. 14, the Philadelphia Fed Manufacturing Index and the Producer Price Index on Thursday, Feb. 15, and January building permits on Friday, Feb. 16. And if you have time, make sure to check out today’s Market Update for a look at what else is going on.

Good Trading,
JJ
@TDAJJKinahan


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