An In-Line Activision (ATVI) Should Beat Low Expectations - Piper Jaffray
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PiperJaffray analyst, Mike Olson, published an earnings preview on Activision Blizzard (NASDAQ: ATVI) that projects inline results despite recent NPD data showing sales falling 7% short of guidance. That said, he also expects the company to set the bar low with 2016 guidance and notes that "on average, in the last 6 years initial FY EPS guidance has been 20% below actual results. No change to Overweight rating or $42 PT.
Olson is modeling the Activision segment to increase 2% y/y and Blizzard to be down 6%, driven by difficult comparisons to the launch of Destiny and a Diablo III console edition last year.
The company guided to non-GAAP EPS of $0.82 on $2.15B vs. current Street estimates of $0.86 on $2.2B. Activision Q4 NPD revenue was down 7% y/y. However, we remain comfortable with our estimate for a 2% revenue decline, driven by a rebound for Call of Duty and strong digital revenue. According to NPD, Black Ops III units were up 7% vs Advanced Warfare the prior year. Factoring a 25%+ take rate on full game downloads and bundles, they believe Black Ops III is tracking in-line with their expectation for 20.5M units (up approx. 10% y/y vs our estimate of about 18M units for Advanced Warfare). Activision previously announced that sales of the game crossed $550M in the first three days after its 11/6 launch.
CY15 was highlighted by Call of Duty: Black Ops III, which they believe was strongly positioned, despite the crowded holiday release lineup. The company also launched the reboot of Guitar Hero and the final installment of StarCraft II: Legacy of the Void. They have built out their model based on specific title unit expectations to 2020 and believe a LT outlook for Activision-Blizzard-King that includes a 3-year CAGR for 2015E-2018E of 15%+ on revenue and 20%+ on EPS is achievable.
Activision is scheduled to report Q4 results on 2/11.
For an analyst ratings summary and ratings history on Activision Blizzard click here. For more ratings news on Activision Blizzard click here.
Shares of Activision Blizzard closed at $35.30 yesterday.
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