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Will Activision's (ATVI) Earnings Surprise This Season? - Analyst Blog

Zacks Equity Research
Updated

Activision Blizzard Inc. (ATVI) is set to report fourth-quarter 2014 results on Feb 5. Last quarter, the company delivered a positive earnings surprise of 144.44%. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 195.40%. Let’s see how things are shaping up for this announcement.

Factors to Consider

We believe that Activision’s superior product portfolio offers it a competitive advantage over the likes of Electronic Arts, Take-Two Interactive Software Inc. (TTWO) and Glu Mobile, Inc. (GLUU). However, management’s cautious approach is commendable due to volatility associated with the console transition cycle.

The new game releases have the potential to be among the largest and most profitable in their respective spheres, in our view, and would reflect in the to-be-reported quarter results.

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However, Activision’s limited presence in the mobile gaming segment, higher adoption of free-to-play games and significant competition are the headwinds in the near term. Also, the fact that the company depends on a handful of mega franchises (Call of Duty, World of Warcraft and Skylanders) for the lion’s share of its revenues makes it highly susceptible to the success of these games.

Earnings Whispers

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

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at loss of 84 cents. Hence, the difference is of 0.00%.

Zacks Rank: Activision’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

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

A company that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter is Demandware, Inc. (DWRE), with an Earnings ESP of +25.00% and a Zacks Rank #3.


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GLU MOBILE INC (GLUU): Free Stock Analysis Report
 
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Zacks Investment Research