Activision Blizzard Inc. (ATVI) is set to report the third-quarter 2014 results on Nov 4. Last quarter, the company delivered an earnings surprise of a whopping 500.00%. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 309.29%. Let’s see how things are shaping up for this announcement.
Factors to Consider
We believe that Activision is well positioned due to its superior product offering than rivals such as 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.
We believe that the new games have the potential to be among the largest and most profitable in their respective spheres and would enhance profitability, going forward.
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 megafranchises (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 ESP and 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 9 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 Invensense Inc. (INVN), with an Earnings ESP of +4.35% and a Zacks Rank #2 (Buy).
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