Activision Blizzard Inc. (ATVI) is set to report second quarter 2014 results on Aug 5. Last quarter, it posted a 128.57% positive surprise. The company has posted an average positive earnings surprise of 245.71% over the past four quarters.
Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
We believe that Activision is well positioned due to its superior product offering compared to rivals such as Electronic Arts, Take-Two Interactive and Glu Mobile Inc. 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 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 revenue makes it highly susceptible to the success of these games.
For the second quarter, Activision expects non-GAAP revenues of $600.0 million while earnings are expected to be 1 cent.
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 of #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 1 cent. Hence, the difference is of 0.00%.
Zacks Rank #4 (Sell): We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Cognizant Technology Solutions Corp. (CTSH), Earnings ESP of +5.08% and a Zacks Rank #1(Strong Buy)
Super Micro Computer, Inc (SMCI), Earnings ESP of +2.78% and a Zacks Rank #1(Strong Buy)
Semiconductor Manufacturing International Corp. (SMI), Earnings ESP of +33.33% and a Zacks Rank #2 (Buy)
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