Video game maker Activision Blizzard (ATVI) is set to report second quarter fiscal 2020 earnings results after the closing bell Tuesday.
The publisher of some of the most well-known game titles in the gaming industry, including Call of Duty and World of Warcraft, must answer whether it can still pay to play ATVI stock, particularly as COVID-19 cases in many states continue to rise. What’s more, the pandemic hasn't disrupted the pace of game development as it has devastated other industries that produces content such as TV and film. And this was something that the company affirmed earlier this year.
During the first quarter conference call, Activision CEO Bobby Kotick told investors, ”As of now, we're on track to deliver compelling new content, including the World of Warcraft: Shadowlands expansion and the next premium Call of Duty release, both of which are planned for the second half of the year.” It was likely this affirmation that contributed to the strong performance of ATVI stock which has surged more than 60% from the March lows. And analysts sees more gains ahead.
Citing positive data trends in the company's Blizzard segment, analysts at Wells Fargo recently reiterated its Overweight rating on ATVI stock, boosting their estimates over consensus. The investment bank raised its price target on the stock to $92 from $84, implying 11% upside from current levels. The market is eager to see whether the company’s content library was able to attract coronavirus-induced home-confined gamers as it has in the first quarter. Investors will also want the company to guide in a manner that supports Wells Fargo’s confidence.
In the three months that ended June, Wall Street expect the Santa Monica, CA.-based company to earn 68 cents per share on revenue of $1.7 billion. This compares to the year-ago quarter when earnings came to 38 cents per share on revenue of $1.21 billion. For the full year, ending in December, earnings are expected to rise 25% to $2.79 per share, while full-year revenue of $7.22 billion would rise 13% year over year.
After a tough few years during which Activision’s business was disrupted by the emerging popularity battle royale games such as Fortnite, the company’s prospects are looking even much better, thanks to the rise of Esports, among other growth levers. Video game sales in the United States rose 26% in June to $1.2 billion, which is the highest level in more than a decade. What’s more, per the Verge, video game sales surged 52% in May, while rising 73% in April. These trends bodes well for Activision.
In the first quarter, the company reported adjusted earnings of 66 cents per share on revenues of $1.79 billion, crushing analysts expectations for earnings per share of 38 cents on revenues of $1.32 billion. Investors will look to see if the company can duplicate this performance. Beyond the top- and bottom-line numbers, Wall Street will also focus not only on user engagement, but also the performance of esports which is predicted to become a multibillion-dollar industry.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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