Gaming and Entertainment Earnings: MGM and ATVI to Report on Thursday

Gaming and entertainment companies Activision Blizzard (ATVI) and MGM Resorts (MGM) report earnings on Thursday, August 2. Here’s a look at what might be expected from their quarterly reports.

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Earnings season continues with results coming up from MGM Resorts (MGM) and Activision Blizzard (ATVI). MGM reports earnings before market open on Thursday, August 2, and ATVI reports after market close the same day. 

MGM Earnings and Options Trading Activity

In May, the U.S. Supreme Court struck down a 1992 federal law that had banned most states from allowing sports betting. Once that decision went through, the gaming industry was off to the races to lay the groundwork for expanding operations. 

Currently, there are 18 states with active sports-betting legislation, according to the American Gaming Association (AGA), which was a proponent for overturning the federal ban. The AGA estimates that more than $150 billion is wagered illegally in the U.S. each year, so the hope seems to be that a greater portion of that money will flow to state-sanctioned operations. In the past few months, several states have already introduced legislation to allow sports betting in the future. 

MGM’s management has already announced several steps towards expanding its sport betting operations following the Supreme Court decision. Though it was after the end of the second quarter, MGM just announced a new NBA partnership where it will become the league’s first official gaming partner. Right before that, MGM also said it was forming a 50/50 joint venture with London-based GVC Holdings to create a sports betting and online gaming platform in the U.S. 

While MGM’s sports betting plans are likely to be a topic of discussion on the earnings call, the company’s casinos and properties might be the primary focus among analysts. For Q2, MGM is expected to report adjusted EPS of $0.26, down a penny from last year, on revenue of $2.96 billion, according to third-party consensus analyst estimates. Revenue is projected by analysts to increase 12.2% year over year. 

Management said it continues to expect disruptions as its Monte Carlo location in Las Vegas is converted into the Park MGM/NoMad, which MGM has said it expects to be completed towards the end of the year. The absence of a major boxing match in Vegas this past May is another factor that management said will impact second-quarter results. Net revenues are expected to be up slightly, while revenue per available room is projected to grow 1% to 3%, according to the company. 

In terms of new locations, the MGM Cotai in Macau just opened in February this year, so this will be the first full quarter with that location’s results. And the MGM Springfield in Massachusetts is scheduled to open in a few weeks. After that, most of the company’s major construction projects will be completed.

MGM 2018 Stock Chart. MGM had been recovering from a 2018 low of $27.88, but shares are dropping sharply today ahead of tomorrow’s earnings report. A couple hours into the day and the stock was down 5% to $29.80. Chart source: thinkorswim® by TD Ameritrade.   Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Options traders have priced in a 9% stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 79th percentile as of midday. 

At the August 3 weekly expiration, calls have been active at the 30.5 and 31 strike prices in recent trading, and open interest is highest at the 32 strike. Volume was significantly higher on the put side during yesterday’s session, with the heaviest activity at the 30, 31 and 31.5 strikes. 

Looking at the August 17 monthly expiration, calls have been active at the 32 and 33 strike prices. Recent trading on the put side has again been concentrated at the 30 and 31 strikes, although open interest is highest at the 29 strike with more than 36,000 contracts open at the end of Tuesday’s session.

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.

Activision Blizzard Earnings and Options Trading Activity

The rise in popularity of in battle-royale style games, like Epic Games’ Fortnite and PUBG Corporation’s PlayerUnkown Battleground, has been one cause of concern among analysts that worry those games have pulled players away from competitor franchises. Investors will likely be looking to see whether or not these games are having any material impact on ATVI’s results. 

Management has acknowledged that they’ve seen some impact from these types of games, but have indicated that overall they still think it’ll be a net positive for the gaming industry as a whole as new players are attracted to video games. 

ATVI’s guidance for the second quarter is adjusted EPS of $0.46 on revenue of $1.55 billion, and net bookings of $1.35 billion. Overall, analysts have said they are less optimistic with their forecasts. For Q2, ATVI is expected to report adjusted EPS of $0.36 on revenue of $1.39 billion, according to third-party consensus analyst estimates. The company has beat earnings estimates in each of the past eight quarters. 

Another area that investors might be looking for more information on tomorrow’s call is the deal that ATVI just announced with Disney (DIS). The two entered an exclusive multiyear agreement for live TV coverage of the Overwatch League esports tournament.
Activision Blizzard 2018 Stock Chart. ATVI is still up about 14% year to date, even after dropping amid the broader tech selloff. Just before the recent pullback, ATVI hit a new all-time high of $81.64. Leading up to earnings, the stock has been trading around the low-$70 range. Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around ATVI’s upcoming earnings release, options traders have priced in a 5% stock move in either direction, according to the Market Maker Move indicator. Implied volatility was on the high end at the 64th percentile as of this morning. 

In short-term trading at the August 3 weekly expiration, recent activity for both calls and puts has been spread out across a range of strikes. There hasn’t really been any strikes with recent activity that stands out. Open interest is highest at the 75 and 77.5 strike puts, with a little over 3,700 contracts open at each of those strikes. 

At the August 10 weekly expiration, the at-the-money 74 strike call has seen heavier trading recently. And in a few weeks at the August 17 monthly expiration, calls have been active at the 75 and 77.5 strike prices, while puts have been active at the 75 strike. 

What’s Coming Up

On the economic data front, the big thing coming up is July’s employment report, due out Friday morning. And there are plenty of companies scheduled to report earnings coming up: 

  • Kraft Heinz (KHC) before the open on Friday, August 3
  • Disney (DIS) after the close on Tuesday, August 7
  • CVS Health (CVS) before the open on Wednesday, August 8, and Booking Holdings (BKNG) after the close the same day
  • Home Depot (HD) before the open on Tuesday, August 14
  • Wal-Mart (WMT) before the open Thursday, August 16, and Nvidia (NVDA) after the close the same day

For a look at what else is going on, check out today’s Market Update if you have time. 

Good Trading,
JJ

@TDAJJKinahan

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