Activision Blizzard Inc. ATVI is set to report third-quarter 2015 results on Nov 3. Last quarter, the company delivered a positive earnings surprise of 120%. Notably, the company delivered positive earnings surprises in each of the last four quarters with an average beat of 151.53%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Activision reported strong results in the last quarter, with both the top line and the bottom line surpassing their respective Zacks Consensus Estimate.
Additionally, the third quarter has been an important one for the company as it got placed in the S&P 500 index. This leading online and console videogame publisher and developer was included in coveted index upon fulfilling a number of requirements in terms of nationality, market capitalization and some other financial requirements. This development should have a positive impact on the company’s soon to be reported earnings.
The company has been benefiting from its deep focus on broadening its franchise portfolio, innovation and initiatives to expand to new geographies. Activision’s offerings like StarCraft, World of Warcraft, Heroes of the Storm and Call of Duty have been widely popular and should contribute to bottom-line growth. This quarter, the company has also been benefiting from the strength of the recently launched StarCraft II – Legacy of Void.
Recently, the company ventured into the e-sports market with the launch of an e-sports unit. The unit will be spearheaded by former ESPN CEO Steve Bornstein as Chairman. The rising demand for e-sports is likely to be an important growth driver for the company going ahead.
Additionally, at the end of the last reported quarter the company owned two out of five prime videogame franchises in North America and Europe. Apart from these, it had as many as three of the top five next generation games in its kitty. Encouraged by the top-line growth, the company raised its guidance for 2015. We expect this growth momentum to continue and also boost the third-quarter earnings.
We believe that Activision’s superior product portfolio offers it a competitive advantage over the likes of Electronic Arts EA, Take-Two Interactive Software Inc. TTWO and Glu Mobile, Inc. However, management’s cautious approach is commendable due to the volatility associated with console transition cycle.
Earnings Whispers
Our proven model does not conclusively show that Activision is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 13 cents. Hence, the difference is 0.00%.
Zacks Rank: Activision sports a Zacks Rank #1. Though a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.
Stock to Consider
Here’s a stock that you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter
Nexstar Broadcasting Group, Inc. NXST has an Earnings ESP of + 14.29% and a Zacks Rank #2.
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