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Upcoming Earnings: Gaming Giant ATVI to Report Thursday

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May 2, 2018
Man gaming on couch
istockphoto.com/mikkelwilliam

Gaming giant Activision Blizzard (ATVI) reports earnings after the closing bell on Thursday, May 3. In terms of game launches, it was a somewhat quiet quarter for ATVI. The last time the company reported, it wasn’t too long after the release of major games Call of Duty: World War II and Destiny 2.

ATVI did release some product expansions in Q1 2018, but other than that there weren’t any major game launches. From a revenue and earnings perspective, this is typically the slowest quarter of the year coming off of the busy holiday season.

Despite the lack of game launches, two areas analysts and investors are likely to dig in to are the company’s audience and engagement metrics to see how they’ve changed now that it’s further out from some of its major releases in late 2017.

When ATVI reported Q4 2017 results, it had 385 million monthly active users (MAUs), down from 447 million in Q4 2016. Broken down by division, Activision had 55 million MAUs, Blizzard had 40 million and King had 290 million.

The decline in MAUs from 2016 to 2017 was almost entirely from King, which lost 65 million MAUs over the course of last year, according to ATVI. In recent quarters, ATVI has highlighted steps it is taking to stabilize King’s user base, which include regularly releasing new features and content, launching new games and increasing marketing efforts.

Turning to engagement, ATVI reported that players across its games spent more than 50 minutes per day in Q4 2017, the second quarter in a row over the 50-minute threshold. Management has regularly highlighted its audience size and engagement as reasons it is optimistic about its growth initiatives, including in-game purchases, advertising and esports.

The company has said it plans to ramp up advertising this year, primarily focusing on mobile games first. Even with the ad ramp-up, management said it’s expecting a “modest bottom line contribution” from ads in 2018. Down the road, ATVI said it plans to explore more advertising opportunities within the Overwatch and Call of Duty esports leagues.

Activision Blizzard Earnings and Revenue Estimates

For Q1, ATVI is expected to report adjusted EPS of $0.36 on revenue of $1.3 billion, according to third-party consensus estimates. In the same quarter last year, ATVI reported adjusted EPS of $0.31 on revenue of $1.2 billion.

The company has beat or met earnings estimates in the past eight quarters, and it has beat revenue estimates in seven of the eight, with a slight miss in Q3 2016. 

Activision Blizzard 2018 stock chart

ACTIVISION BLIZZARD 2018 STOCK CHART.

ATVI hit a new 52-week high of $79.63 on March 12. Shares have since pulled back and have been trading in a tighter range since the end of March. It has come close, but it hasn’t retested its recent low of $63.32. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Options Trading Activity

Around the upcoming earnings release, options traders have priced in about a 5.7% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 65th percentile as of this morning.

In short-term trading at the May 4 weekly expiration, calls have had heavier volume at the 68 and 70 strike prices, whereas activity on the put side has been lighter. Open interest at the 65-strike put was much higher than any of the other strikes, with 4,366 contracts open at the end of yesterday’s session.

Looking at the May 18 monthly expiration, much of the recent trading has been right around the money. The 67 and 67.5-strike calls have been active on the call side, while the 67.5 strike has been more active on the put side. The 62.5-strike put, a decent ways out of the money, has also been more heavily traded in recent sessions.

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.

What’s Coming Up

The Fed wraps up its meeting today. Chances of rates holding steady sit at 94%, according to Fed funds futures. After the close today, Tesla (TSLA) reports its quarterly results. On Friday morning, tech and retail giant Alibaba (BABA) is scheduled to report earnings.

On the economic data front, the next major report coming up is the April employment report, due out Friday morning. If you have time, check out today’s market update for a look at what else is going on. 

Good Trading,
JJ
@TDAJJKinahan

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