Activision Blizzard Reports Q2 Earnings As E-Sports Continue To Grow

Gaming and entertainment company Activision Blizzard, Inc. ATVI reports second-quarter earnings on August 3 after the closing bell. Analysts and investors will likely be looking to see how management is executing against what it considers its three strategic pillars: expanding audiences, deepening engagement, and providing more opportunities for player investment.

Regarding its audience in the first quarter, the company reported it had a total of 431 monthly active users. Across its three divisions, ATVI reported that Activision users declined by 3 million sequentially to 48 million, Blizzard was basically unchanged at 41 million users, and King’s user base dropped by 13 million to 342 million.

For gaming companies, new games can potentially help attract new users, and spur players on older versions to buy the newest version. ATVI has two games from two of its popular franchises it says it is launching later in the year with Destiny 2 launching in September and Call of Duty: World War II in November.

Turning to its second strategic pillar, deepening engagement, ATVI reported at the end of the first quarter that there was 40 billion hours of gameplay over the past 12 months. Some of the events management cited that helped drive user engagement include Overwatch’s seasonal events, the Heroes of the Storm 2.0 launched in April, as well as regularly releasing content and feature updates in World of Warcraft.

In addition to those events, ATVI has reported it has benefitted from the rise of professional gaming and e-sports. The company regularly hosts international gaming competitions, and says it considers e-sports an “important and growing engagement driver” for the gaming community. In July, ATVI announced it would be launching an Overwatch League with city-based teams operated like traditional sports franchises.

While users declined for its King segment in the first quarter, ATVI reported that engagement among existing players increased, and bookings per paying user rose for the seventh quarter in a row. In addition to the in-app purchases for King’s mobile games, the company has been testing more advertising, and COO Thomas Tippl has said he views advertising as one of King’s biggest opportunities. 

Management has approached its third strategic pillar, providing more opportunities for player investment, by offering expansion packs and other digital extras. In the first quarter, ATVI reported that Blizzard’s total in-game purchases increased 30% year over year. On top of the digital extras, the company is also rolling out new mobile games, such as the creation of a Call of Duty mobile game that was announced in April.

FIGURE 1: RALLYING IN 2017. So far this year, Activision Blizzard’s (ATVI) stock is up 67.71%, compared to the S&P 500’s (SPX) 9.46% increase. Chart source: thinkorswim^® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Activision Blizzard Earnings and Trading Activity

For the second quarter, ATVI is expected to report earnings of $0.30 per share on revenue of $1.2 billion, according to Wall Street analyst estimates. Video game companies changed the way they report last year to comply with new requirements, so many analysts typically calculate their own adjusted figures that differ from the company's adjusted figures. The company has beat earnings expectations in the last four quarters and beat revenue expectations in three out of the four.

The stock is prone to big price swings after reporting results, averaging approximately a 7% change in post-earnings trading over the past eight quarters.  Around ATVI’s upcoming earnings release, options traders have priced in about a 7.5% potential share price move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.

In short-term trading at the August 4 expiration, calls have been active at the 63 and 65 strike prices while puts have been active at the 56.5 and 59 strikes. At the August monthly expiration, there’s also been quite a bit of activity at the 67.5 strike price. As of this morning, the implied volatility is at the high end of the range at the 93rd percentile.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Tomorrow we have the jobs report coming out as companies continue to release their second-quarter earnings. While earnings are the big focus now, job figures could shift attention back to the overall economy. If you have time, make sure to check out today’s market update to see what else is