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Activision Blizzard (ATVI) Q2 Earnings: What's in the Cards?

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Activision Blizzard Inc. (ATVI - Free Report) is set to report second-quarter 2017 results on Aug 3.

Last quarter, the company delivered a positive earnings surprise of 68.75%. The company has delivered positive earnings surprises in each of the last four quarters, with an average beat of 28.56%.

In the last reported quarter, the company’s revenues (including deferrals) of $1.196 billion easily beat the Zacks Consensus Estimate. However, on a year-over-year basis, revenues (including deferrals) were down approximately 18%.

Shares of Activision have registered impressive growth in the past one year. The stock generated a return of 54.2% compared with the industry’s gain of 38.9%.

For second-quarter 2017, Activision anticipates GAAP revenues of $1.425 billion and earnings per share of $0.15. On a non-GAAP basis, revenues and earnings are likely to be $1.425 billion and $0.38 per share, respectively. Deferral revenues are expected to be around negative $225 million.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Increasing digital revenues and continued strength in titles like Call of Duty should cushion earnings in the second quarter. In the last quarter, apart from releasing a new DLC pack for Call of Duty, Activision rolled out other in-game content for World of Warcraft, Hearthstone as well as the Overwatch Uprising event. These, along with the launch of Heroes of the Storm 2.0, are likely to positively affect the upcoming results. More importantly, the acquisition of King Digital is expected to continue boosting growth.

Activision is aggressively working on becoming a media entertainment giant, somewhere on the lines of The Walt Disney Company. Apart from launching a movie studio, the company is also strengthening its presence in the lucrative e-sports market.

Nevertheless, higher adoption of free-to-play games and significant competition from the likes of Electronic Arts (EA - Free Report) , Take Two Interactive and Glu Mobile remain near-term headwinds.

Earnings Whispers

Our proven model does not conclusively show that Activision is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Activision’s Earnings ESP is -8.00%. This is because the Most Accurate estimate stands at 23 cents, lower than the Zacks Consensus Estimate of 25 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Activision’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are stocks, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter.

Kemet Corporation (KEM - Free Report) has an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology, Inc. (VSH - Free Report) has an Earnings ESP of +6.06% and a Zacks Rank #1.

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