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Activision (ATVI) Stock Gains Ahead of Earnings: What to Expect

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Shares of Activision Blizzard (ATVI - Free Report) gained about 1.3% on Wednesday, as investors eagerly anticipate the company’s latest earnings announcement after the bell tomorrow. ATVI is looking to pare recent losses ahead of the report, which could be a pivotal moment for the video game publisher considering recent releases and controversy surrounding it.

Activision shares gapped down at the start of the week after its Blizzard segment’s annual BlizzCon event. Wall Street was apparently reacting to the backlash Blizzard saw after revealing a new title in the Diablo franchise at the conference.

The new game, Diablo Immortal, is a mobile-only addition to the popular Diablo franchise, and while that likely made sense from a business perspective given the profitability of ATVI’s mobile segment, it frustrated traditional gamers. Core gaming audiences, especially those that have followed a particular property for years, tend to dislike when companies chase trends with their beloved franchises.

That said, Activision did just release one of the biggest games of the year, Call of Duty: Black Ops 4, and its King subsidiary recently rolled out the latest mobile smash hit, Candy Crush Friends Saga. All of this will likely be mentioned in the company’s guidance and management’s commentary tomorrow.

But what should investors expect from Thursday’s Q3 report itself? Let’s take a closer look.

Earnings Outlook

Activision Blizzard will release its third quarter fiscal 2018 earnings results after the market closes on Thursday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates.

Earnings: ATVI is projected to report adjusted earnings of $0.51 per share, which represent a decline of 15% from the year-ago quarter.

Estimate Revisions: Activision has witnessed three negative earnings estimate revisions and just one positive adjustment for the to-be-reported quarter within the last 60 days. The Zacks Consensus Estimate has dropped two cents over the duration of the quarter.

Revenue: Consensus estimates have ATVI’s Q3 revenue pegged at $1.67 billion. This would be down about 12% from the $1.90 billion it tallied in the comparable quarter last year.

Points to Consider

Video game releases are cyclical, so year-over-year comparisons are often not entirely helpful. Moreover, Activision had not missed EPS estimates in well over two years, so an expected earnings beat likely will not do much for the stock after the report is filed.

What investors are going to be looking for is positive guidance for the holiday quarter and goods news on the first month performances of Call of Duty: Black Ops 4 and Candy Crush Friends Saga. We already know the former sold a slightly disappointing $500 million in its first three days, but a positive update from management is still possible.

There is also a chance an analyst might ask Activision executives about the negative reaction to Diablo Immortal. This could reveal whether the company expected the game to drive any growth, or whether the backlash might educate its mobile game strategy in the future.

A pullback in the stock caused simply by headline volatility ahead of the report might give ATVI some space to swing to the upside if its report and guidance impress. Nevertheless, the uncertainty here could be great enough to keep some investors away.

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