Earnings Preview: Activision Blizzard

Activision Blizzard (ATVI) is expected to report Q2 earnings Wednesday Nov. 5 after market close, with a conference call scheduled for 4:30 pm ET.

Guidance

The consensus estimate is 4c for EPS and $632.1M for revenue, according to First Call. This is the first quarter of combined results for the new company, which was formed in July when Vivendi SA bought a majority stake in Activision and combined it with its games unit. The company moved from a fiscal year to a regular calendar year after the acquisition. Company guidance for the quarter was for non-GAAP revenues of $620M to $650M, and non-GAAP EPS of 5c to 8c.

Analyst Views

Last week, competitor Electronic Arts (ERTS) reduced its FY09 earnings guidance by 8% because of the weak Euro, an additional 3% from general economic pressure, and the delay of EA's latest "Harry Potter" game. But many believe those economic factors could have less of an impact on Activision.

Kaufman Brothers expects an in-line Q3, estimating revenue of $630M and non-GAAP EPS of 8c. Kaufman characterized Activision's 3Q game line-up as relatively narrow. Major releases for Activision's quarter included the international release of Guitar Hero On Tour, and Little League World Series 2008. The firm also expects strong sell-through from titles released in the previous quarter, including Guitar Hero: Aerosmith. Looking forward, Kaufman expects Activision to revise revenue guidance downward for 2008 due to macro economic conditions effecting consumer spending. The firm is looking for Q4 revenue of $2.07B and non-GAAP EPS of 42c; and FY08 revenues of $4.1B and non-GAAP EPS of 64c. Prior company guidance calls for 2008 revenues of $4.0B to $4.2B, and non-GAAP EPS of 60c to 65c.

Soleil says that heading into the seasonally strong C4Q, it believes Activision holds the strongest absolute line-up of titles planned for this holiday, including new versions of 2007's top games, Call of Duty, expanding to the Wii and PS2, and just launched Guitar Hero World Tour with drums and vocals this year; DreamWorks' Madagascar 2; a new franchise for the company, James Bond (launching with movie); and a highly anticipated update to Blizzard's World of Warcraft franchise, Wrath of the Lich King.

Key issues for the conference call: Forward guidance after the first completed quarter with the Blizzard combined results; commentary on the outlook for holiday sales, and the company's 2009 game schedule.