Earnings Preview: Activision Blizzard

Activision Blizzard (ATVID) is expected to report Q1 earnings after market close Thursday, July 31, with a conference call scheduled for 4:30 p.m. ET.

Guidance

The consensus estimate is 19c for EPS and $598.08M for revenue, according to First Call. Big changes this quarter as Activision Blizzard was formed earlier this month after Vivendi SA bought a majority stake in Activision Inc. and combined it with its games unit. Activision has pre-announced earnings of 16c to 18c on sales of $650M for the standalone company. It said on July 14 that it expected adjusted earnings of 21c to 23c, up from an earlier forecast of 13c. The company cited strong launches of "Kung Fu Panda", "Guitar Hero On Tour" and "Aerosmith", and stated that it would have raised standalone guidance had it remained independent.

Analyst Views

Wedbush Morgan, who rates the stock Strong Buy, suggests that investors focus on the company's 2009 results because earnings this year are not a meaningful measure of Activision's value as a combined company. Going forward, Soleil believes the combined Activision Blizzard has a very strong slate for FY09, and they continue to like the prospects for synergies from the merger. That said, Soleil believes that, baring a meaningful buyback, the implied share count dilution from the merger could put pressure on valuation.

Activision Blizzard should should have a very strong 2H FY09 lineup that includes: Madagascar 2, James Bond Quantum of Solace, and Spider-Man: Web of Shadows. For CY09, Soleil estimate combined revenues of $5.74B, and PF-EPS of $1.60. Key issues for the conference call: Forward guidance for the combines company and cost synergies if any; commentary on competition; and commentary on the title lineup for FY09 and the time-line of the releases.