Q3 Preview: Brrr... Might Be Chilly Report for Activision (ATVI) on Weaker Releases

Shares of Activision Blizzard, Inc. (Nasdaq: ATVI) are trading stronger Tuesday ahead of its third-quarter earnings release, expected out after the market close this afternoon.

Click here to access the webcast event, scheduled for 4:30pm EST Tuesday, or click here for the investor relations website.

The Street is looking for Activision to produce earnings of 2 cents per share on revenue of $558.4 million. Such quarterly results would be a drop from 10 cents per share reported last quarter, and 12 cents per share in the same period last year.

Shares rose about 2 percent through the quarter and are up about 16 percent since. Activision has traded within a range of $10.40 to $14.40 over the last 52-week time frame.

Excluding about $2.58 per share in cash, the stock is trading for 12x next year's earnings expectations. Electronic Arts (Nasdaq: ERTS) is going for about 15.9x, and Take-Two Interactive (Nasdaq: TTWO) is about 5.3x.

Data from Bloomberg has 19 analysts with a Buy rating on the stock, three at Hold, and none with a Sell. The analyst price target is $15, with a low of $13 and high of $19.

Analyst Comments

• Wedbush is modeling for earnings of 4 cents per share and revenue of $600 million, commenting that upside should come from digital revs.
  
  Wedbush also said, "We expect the Call of Duty: Elite premium membership plan to be very popular with CoD’s hard core gamers. Elite is being bundled at a $10 discount with the underlying game, which may accelerate as many as 3 – 4 million subscriptions into 2011."
  
  Fiscal 2011 guidance is expected to be maintained with revenue of $4.05 billion and earnings of 77 cents per share. "So far this year, Activision has beaten EPS guidance by a combined $0.12, yet raised full-year EPS guidance by only $0.07. The lack of a full pass-through suggests a lack of confidence in many of its 2H:11 titles, though we believe the company is executing flawlessly." Wedbush also believes 2012's game lineup is superior to 2011, even with COD: MW3.
  
  
• Deutsche Bank is looking for earnings of 3 cents per share on revenue of $540 million, seeing top-line growth fueled by continued online expansion "which could provide EPS upside given the >50% operating margins inherent in the digital business. We note Activision faces a difficult YoY comp in 3Q given the company had only one major title release and began investing heavily in marketing for the all-important holiday quarter."
  
  Keys on the call will be the launch of COD: MW3 and World of Warcraft subscriber trends, Deutsche says. "While we're not expecting an update on MW3 unit sell-through during the call, we do expect the company to provide detail on pre-order activity leading up to the launch. We note that per the XBOX Live blog Major Nelson, during the week of EA's Battlefield 3 launch, CoD Black Ops and CoD MW2 ranked #1 and #2 in XBOX Live titles while Battlefield 3 was ranked #3. This is a further testament to the strength of the CoD franchise. Turning to WoW, we expect management to address sub trends and the efforts put in place to reverse sub declines to potentially 11 million."
  
  
• Brean Murray sees earnings of 2 cents per share and revenue of $560 million. Brean Murray notes that Activision faces tough comps, with X-Men: Destiny and Cabela: Big Game Hunter 2012 released this year, and StarCraft 2, Spiderman, and Guitar Hero release in the same period last year.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Activision Blizzard's past performance at Streetinsider's Activision Blizzard Income Statement.

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