Activision Blizzard (ATVI): Elimination of Non Gaap Revenue Could Create Volatility in Electronic Entertainment - Baird

Baird analyst, Colin Sebastian, believes non GAAP revenue could disappear based on a “Q&A” document that includes explicit guidelines and revised interpretations which may restrict the reporting of non-GAAP revenues. ). In addition, according to recent press reports, the SEC may be considering new regulations to “rein in” the use of non-GAAP earnings metrics.

Today, video game publishers defer a portion of revenues for online-enabled games on a straight-line basis over a period of time when users are likely to access online content and/or services. For example, EA (NASDAQ: EA) defers a portion of revenues from a Battlefield F3Q (Dec.) release over the subsequent 6-9 month period, effectively pushing out a material portion of revenues from the launch quarter into subsequent periods, even though EA collects monies for the game up-front.

The analyst believes Take Two is likely to face the biggest optical impact, which reflects the company's more concentrated revenue streams than either EA or Activision Blizzard (NASDAQ: ATVI). To be clear, this change should have no impact on the operations or cash flow of these companies. Since EA expenses R&D costs as incurred and not recognized ratably, there are no deferred cost of sales; however, Activision and Take Two defer related cost of sales, which are then recognized along with related revenues.

No change to Outperform rating

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 $38.02 yesterday.

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