Video game makers aim to level up this earnings season

Trevir Nath, director of content
Key Points

The video game industry has drastically changed since its early beginnings with Atari in the 1970s. Modern day consoles have become powerhouses that replicate some of the most powerful computers. They are no longer a pastime activity but an investment. Sony's PS4 or Microsoft's Xbox One can run you upwards of $300 which doesn't include additional controllers or the games themselves.

Still, the video game industry continues to expand. Many of the industry's biggest publishers have seen their stocks skyrocket on new content, strategic acquisitions, and a transition towards digital offerings. With earnings season fully underway, investors should keep an eye on reports from Electronic Arts, Activision Blizzard and Take Two Interactive.

Electronic Arts begins the week with second quarter earnings Tuesday after the market closes. The game publisher took a major leap in the past year, largely driven by the success of its sports franchises like Madden and Fifa, as well as "Star Wars: Battlefront." Star Wars synergies aren't expected to have a huge impact on the quarter to be reported as the game nears its 1-year anniversary. Without any blockbuster titles this quarter, EA's prospects appear relatively subdued on a year-over-year basis.

Analysts are calling for earnings per share of 1 cent on $659.95 million in revenue, according to the Estimize consensus data. Per share and revenue estimates have been cut considerably since EA's last report in May. Compared to a year earlier, this represents a 94 percent decline on the bottom line and a 4 percent decline on the top.

The second half outlook for EA still looks promising regardless of muted Q2 expectations. The company is showing strong growth in digital sales and continued traction in the mobile market. Downloadable content is replacing physical games as its fastest growing source of income. With the next iterations of Fifa and Madden scheduled to hit the market within the next month, don't be surprised if tomorrow's results are an aberration from the rest of the year.

On Thursday, both Activision Blizzard and Take Two Interactive take the stage after the market closes.

Activision is firing on all cylinders and should have no problem topping expectations this week. Earnings will largely be driven by the success of its new flagship game, "Overwatch." In its short shelf life, the game is estimated to have sold 8 million units, double what was previously expected. "Overwatch" has been a huge success and is poised to challenge the dominant eSports title "League of Legends" in a number of competitive gaming circles.

The company, like its peers, is gaining momentum in its digital and mobile offerings. But eSports might be its most promising business. Professional gaming has grown in popularity across the world and is slowly becoming a big business of its own.

The bar has been set high for Activision's second-quarter results. Analysts are calling for earnings per share of 47 cents, up 259 percent from a year earlier, according to the crowd-sourced consensus. This estimate has increased 13-percent since Activision's most recent report in May. Revenue is anticipated 100 percent higher at $1.51 billion, marking the second consecutive quarter of positive comparisons.

Take Two Interactive has largely fallen under the radar compared to Activision and Electronic Arts. The ongoing success of its Grand Theft Auto and 2k Sports series have driven bottom-line results. Both "Grand Theft Auto 5" and "NBA 2k16" placed in the top 10 best-selling games of 2015. However, without a new Grand Theft Auto game until 2018, and two years since the previous one, it might be hard to replicate the past year's success.

The crowd is expecting a 27-cent loss per share on $265.37 million in revenue. Compared to the same period last year this represents a 184-percent decline on the bottom line and 28 percent on the top. Shares are up 15.7 percent since the start of the year but should start to fall if earnings or guidance come in weak.

How do you think these names will report? Be included in the Estimize consensus by contributing your estimates here!