Why Analysts Disagree About Activision Blizzard's Quarter

Feb. 6.14 | About: Activision Blizzard, (ATVI)

Activision Blizzard Inc. (NASDAQ:ATVI) is set to report FQ4 2013 earnings after the market closes on Thursday, February 6th. Activision Blizzard is one of the world's largest gaming companies known for producing franchises such as Call Of Duty, World of Warcraft, and Diablo. ATVI's latest blockbuster release Call of Duty: Ghosts is expected to be a big source of revenue throughout the holiday season. However, some analysts have expressed concern that numbers may not be as hot as previously thought because ATVI did not publish any sales announcements for the title. For the last title in the franchise, Call of Duty Black Ops 2, ATVI was quick to share that over 7.5 million copies sold generating over $500 million revenue on launch day in the U.S. alone. Here's what investors are expecting from Activision Blizzard this quarter.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors. image

(Click Here to see All Estimates for ATVI)

The current Wall Street consensus expectation is for ATVI to report 73c EPS and $2.221B revenue, while the current Estimize.com consensus from 17 Buy Side and Independent contributing analysts is 77c EPS and $2.292B revenue. This quarter, the buy side, as represented by the Estimize.com community, is expecting ATVI to beat the Wall Street consensus on both profit and revenue.

Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting ATVI's EPS every quarter and has been more accurate in predicting revenue 5 times. By tapping into a wider range of contributors, including hedge fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a larger differential compared to previous quarters.image

The distribution of estimates published by analysts on the Estimize.com platform range from 52c to 56c EPS and $50.00M to $53.86M in revenues. This quarter, we're seeing a larger distribution of estimates compared to other quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market could mean more volatility post earnings.image

Throughout the quarter, the EPS estimate from Wall Street decreased from 78c to 73c and the Estimize consensus returned to its starting point of 77c. Wall Street reduced its revenue consensus from $2.279B to $2.221B, while the Estimize forecast plunged from $2.384B to $2.292B. Timeliness is correlated with accuracy, and falling analyst expectations at the end of the quarter are often a bearish indicator. Analysts may have downgraded their revenue expectations after ATVI failed to deliver a sales announcement in the immediate wake of the latest Call of Duty game.

image

The analyst with the highest estimate confidence rating this quarter is anmikyoso, who projects 78c EPS and $2.376B in revenue. In the Winter 2014 season, anmikyoso rated as the 30th best analyst and is ranked 29th overall among over 3,750 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, anmikyoso is making a bullish call expecting ATVI to beat both Wall Street and Estimize on EPS and revenue.

While there is uncertainty about how many copies the latest Call of Duty game will sell this quarter, expectations for ATVI are fairly similar to FQ4 2012. The game will have to perform well and be supported by strength from other titles to keep up with the high demand from both Wall Street and the greater expectations from investors.

Disclosure: No positions