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Activision Blizzard Inc. Earnings Preview: What to Watch

If beating earnings expectations is a game, then Activision Blizzard (NASDAQ: ATVI) is winning. The company has passed management's financial targets in each of the past five quarters, after all.

Considering the run-up in the stock so far this year, Wall Street is betting Activision will add to that impressive streak when it posts fiscal second-quarter figures after the market closes on Thursday, Nov. 2.

Image source: Getty Images.

Let's look at a few key trends to watch in the video game developer's fiscal third-quarter announcement.

By the numbers

 Metric

Q3 2017 Projection

Q3 2016

Year-Over-Year Change

Revenue

$1.7 billion

$1.63 billion

4%

Earnings per share

$0.45

$0.52

(14%)

Data source: Activision Blizzard's financial filings. Figures are non-GAAP.

CEO Bobby Kotick and his team are calling for sales to inch higher while earnings take a step back from the prior year's record result. Those numbers will be influenced by the performance of its biggest single launch in the quarter, Destiny 2.

Activision indicated in September that the game is off to a strong start. It enjoyed eight straight days of at least 1 million concurrent players, for one. The title also set a release record on consoles and should have its sales -- and profits -- boosted by its subsequent launch on PCs. Activision is making Destiny 2 available for direct purchase exclusively through its own PC store to mark the first time that a non-Blizzard title has gotten that treatment.

Audience and engagement

The Destiny 2 launch could help Activision widen its gamer audience following last quarter's decline. Remember, the gamer base sank to 407 million in the second quarter from 431 million in the prior year. That result wasn't as bad as it looked, though.

The Blizzard side of the business, in fact, hit a new engagement record thanks to strong demand in the Overwatch franchise and growth in the core World of Warcraft and Diablo brands. The Activision segment held steady despite having no major release in the quarter, and the King Digital unit lost a big chunk of casual players but ended up improving overall engagement while lifting profitability. I'd expect to see healthy overall audience and engagement metrics along those lines in next week's report.

The holiday outlook

Finally, look for a bright forecast from Activision on the upcoming holiday quarter. Sure, its latest Call of Duty release might not attract as many gamers as prior franchise launches did. But the company is having no problem extracting value from that iconic brand lately through steady content expansions like the recent Zombies Chronicles release.

Image source: Activision Blizzard.

Management's holiday outlook might get a boost from the advertising platform they've been building into the King Digital gaming business as part of Activision's long-term strategy to grow into more of a diversified entertainment company.

The developer's latest big-picture forecast calls for sales to inch up to another record of $6.6 billion this year. Net income is expected to rise to almost $1.5 billion from $966 million in 2016. Those are aggressive growth predictions as they stand. But if Activision follows its recent pattern and raises full-year targets for the third time this year, it will be due to success across several important metrics, including engagement, audience size, and rising demand by gamers for digitally delivered content.

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Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.