We expect Activision Q2 results in-line with our estimates for revenue of $585 million and EPS of $0.05, compared to consensus for revenue of $599 million and EPS of $0.05, and Q2 guidance for revenue of $575 million, and EPS of $0.04.
NPD data shows that Activision’s Q2 U.S. retail sales tracked down 15%(compared to guidance of down 16%). We expect Activision to maintain FY:11 guidance for revenue of $3.95 billion, and for EPS of $0.73.
While we believe guidance may prove to be conservative (due to digital revenues opportunities, share buyback, and expected strong sales from Call of Duty Modern Warfare 3), we believe that Blizzard’s game may slip into 2012. We expect few new details about Call of Duty Elite or release date for Blizzard’s Diablo III.
The company remains dependent on a few franchises, and increased competition may keep its outlook conservative. Activision is increasingly dependent on Call of Duty and Blizzard, which face competition from EA’s firstperson shooter Battlefield 3 and MMO Star Wars: The Old Republic, respectively.In EA’s recent earnings report, the company stated that preorders for Battlefield 3 (due out in October) and Star Wars: The Old Republic (due out this holiday) are exceeding expectations and preorders of prior versions significantly.
Although revenue and earnings are expected to decline in 2011, we believe Activision’s prospects improve dramatically in 2012. In addition to a game from Bungie (developer of Halo), Activision may release two Call of Duty games (a shooter and an action game), while Blizzard reportedly has two StarCraft II expansion packs and its new MMO Titan in development.
Michael Pachter is a video game analyst at Wedbush Morgan.