Q1 Preview: 'Black Ops' Continues to Be Smoking-Hot for Activision (ATVI)

Shares of Activision Blizzard, Inc. (Nasdaq: ATVI) are rising Monday as traders are positioning ahead of the software company's first-quarter earnings report, expected out after the market close. The stock last traded at $11.57, up 0.8 percent from Friday's closing price.

Activision is expected to report EPS of $0.08 on sales of $668.28 million. Last quarter, the Santa Monica, CA-based company had EPS of $0.53 on revenue of $2.55 billion. Activision posted earnings of $0.09 per share on revenue of $1.31 billion during the same quarter last year.

Shares fell 11 percent through the quarter and are up 5.1 percent since.

Activision stock currently trades at a P/E of 13.0x FY12 EPS estimates, compared with 19.8x at Electronic Arts Inc. (Nasdaq: ERTS) and 13.7x for Take-Two Interactive Software Inc. (Nasdaq: TTWO).

Data from Bloomberg has 22 analysts with a Buy on Activision, 3 with a Hold, and none suggesting to Sell. The analyst price target average is $14, with a high of $16 and low of $12. Shares have traded in a range of $12.65 - $10.01 over the last 52-weeks.

Analyst Summary

• Wedbush sees EPS of $0.08 on revs of $677 million. Wedbush notes Black Ops sales were 17 percent higher than its predecessor. "NPD data shows that Activision's Q1 U.S. retail sales tracked down only 7% (compared to guidance of down .10%) due primarily to Black Ops." Maintained guidance is also expected.
  
  
• Kaufman Bros. expects EPS of $0.08 on revs of $671 million. "Activision had only one new release in the quarter, NASCAR The Game 2011, which only saw modest success, and we anticipate relatively weak sell through of the 4Q10 releases of DJ Hero 2, Tony Hawk and James Bond, versus a still hot music segment in 1Q10. However, we expect 1Q11 results to be underpinned by continued strong sales of Call of Duty: Black Ops, as well as World of Warcraft: Cataclysm, which launched in December."
  
  
• Goldman Sachs is looking for EPS of $0.08 as well. The firm believes "Activision is the most advanced digital story among the major publishers with the two most engaged online brands: Call of Duty and World of Warcraft, each significantly beating other games in total time spent online and over 2X the size of their nearest peers. We see it moving from 30% of revenue from digital to over 45% over the next three years, with over 100 bp of margin expansion per year. The power of the brands makes them ripe for higher ARPU from new digital compensation models and addressable market expansion."
  
  
• Janney is looking for Activision to exceed its estimates calling for EPS of $0.07 and revs of $643 million. Janney continues to "expect top line upside from continued catalog sales of Call of Duty: Black Ops and COD map packs and slight bump from FX, while revenues are likely to be down y/y due to a light release schedule." Janney is modeling for operating margin of 17.9 percent, which the firm believes may be slightly conservative.
  
  
• Janco sees revs of $716 million and EPS of $0.08. Janco said "we see limited fiscal Q1’11 execution risk, with performance primarily attributable to Blizzard’s World of Warcraft and back catalog sales. Investors continue to balance Modern Warfare 3 (est. Nov. release) execution risk and potential competition from Electronic Art’s Battlefield 3, with an accelerated fiscal ’12 growth opportunity. We have completed a bottom up sales build through fiscal ’12 period, and recommend investors build positions into a fiscal ’12 performance potential."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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