For Activision Blizzard, 'Overwatch' And 'Candy Crush' Strength Outweighs 'Call Of Duty' Weakness

Activision Blizzard, Inc. (NASDAQ:ATVI) crushed earnings expectations for its fourth quarter as "Overwatch" performed better than most anticipated and offset "Call of Duty" weakness.

But, BMO Capital’s Gerrick Johnson prefers to remain on sidelines amid elevated investor expectations for upcoming game releases, an aging core product portfolio, and uncertainty regarding new eSports and entertainment business models.

Quarter, In Review

Activision reported quarterly EPS of $0.92, ahead of the Street’s $0.73 estimate, with "Overwatch" becoming the quickest Blizzard title to gain over 25 million registered players.

“Engagement (Overwatch) is strong and repeat play of this game has been strong. The game also lends itself well to eSports,” Johnson wrote in a note.

In addition, the quarter saw a decent outing for "Candy Crush." A lower-than-expected tax rate also added $0.11 to the quarter.

Guidance And Strategy

Activision benefits from swift growth in mobile games and the transition of physical software sales to digital downloads, which provides higher margins.

However, for the first quarter, the company expects revenue of $1.05 billion and EPS of $0.18. The outlook missed Street consensus of $1.2 billion and $0.31.

Also, Activision introduced 2017 full-year revenue guidance of $6.3 billion and EPS of $1.85. This guidance is also below the prior Street consensus of $6.68 billion in sales and EPS of $2.03.

Analyst's Commentary

That said, the analyst noted that video game companies are prone to conservative guidance, particularly at the beginning of the year.

Still, Johnson maintains his Market Perform rating on the shares, but raised the price target by $2 to $42.

“As investors begin to size up the revenue opportunity from advertising on the King platform, we grow more concerned about declining MAUs and lack of traction from non-Candy Crush games,” Johnson continued.

At last check, shares of Activision had fallen 2.71 percent to $45.95 on the day.

Image Credit: By Aubrey Morandarte from Guildford or Coventry, England [CC BY-SA 2.0], via