Earnings Preview: Activision Blizzard

NEW YORK - Video game publisher Activision Blizzard Inc. is scheduled to report third-quarter earnings Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Activision is best known for games such as the popular "Guitar Hero" franchise, "World of Warcraft" and the "Call of Duty" series, whose upcoming installment, "Modern Warfare 2," could set entertainment records in the amount of money it rakes in the week it launches.

Even so, Activision can't completely escape the slump that's plagued the video game industry for much of this year. Before September, U.S. video game sales showed a double-digit percentage decline for six consecutive months, according to the NPD Group. Console price cuts and the fall launches of blockbuster games are helping improve things, but even with that the industry likely won't do as well this year as it did in 2008.

Like most video game companies, Activision brings in much of its revenue during the holiday season, so investors will be eyeing the company's outlook for the current quarter in the earnings report. That will show just how badly the recession, Wii fatigue and the delays of some hit games into 2010 has hurt the industry.

"The sentiment for the group is as bad as we have seen it in 10 years of following these names," wrote Broadpoint AmTech analyst Benjamin Schachter in a note to investors in Activision, Electronic Arts Inc. and THQ Inc. "While there are clearly problems in the industry, we still think well managed companies with hits can make money."

This includes Activision. Companies with hits that appeal to hardcore gamers, Schachter said, can do well even though the industry is hurting.

BY THE NUMBERS: In August, Activision forecast adjusted earnings of 3 cents per share and adjusted revenue of $700 million. Activision, like rival Electronic Arts, provides adjusted sales figures because it counts revenue from the sale of online services for some of its packaged games, as well as other online content, over an estimated service period rather than when the game is sold.

Analysts, on average, are expecting a profit, excluding items, of 4 cents per share on sales of $726.1 million, according to a poll by Thomson Reuters.

ANALYST TAKE: "The company had strong (second-quarter) catalog sales and (third-quarter) releases, likely driving publishing revenues to near flat year-over-year, and even with the suspension of 'World of Warcraft' in China for much of the quarter, the Blizzard business should contribute $230 million or more in revenue," wrote Wedbush Morgan analyst Michael Pachter in a note to investors. He rates Activision "Buy."

The game was suspended because Chinese regulators have been fighting over the right to oversee the game in the country.

WHAT'S AHEAD: "Call of Duty: Modern Warfare 2" comes out on Nov. 10. Some analysts estimate it could bring in as much as $500 million the weak it launches, which would put it on par with "Grand Theft Auto IV" as one of the most lucrative entertainment launches in history.

STOCK PERFORMANCE: Activision's shares fell 1.9 percent during the quarter to close at $12.39 at the end of September. The stock has declined since.

Santa Monica, Calif.-based Activision Blizzard is majority owned by Vivendi SA.

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