Video Game Analyst: Activision Earnings Solid, But Questions Remain

According to analyst Michael Pachter at Wedbush Morgan, Activision Blizzard Inc. (NASDAQ:ATVI) did well this quarter but left some lingering issues about the future.

Here’s Pachter’s bullet points for his analysis of Activision (NASDAQ:ATVI) earnings:

1) Q1 beat driven by key franchises and digital. Pro forma revenue was $755 million, compared with our estimate of $677 million, the consensus estimate of $667 million, and guidance of $640 million. Pro forma EPS was $0.13, compared with our and consensus estimates of $0.08, and guidance of $0.07. Call of Duty: Black Ops became the best-selling game of all-time in dollars during  the quarter across the 360, PS3, and PC in the U.S. and Europe. Black Ops First Strike, the game’s first content pack, had over 1.4 million downloads in its first 24 hours, helping to drive a $100 million increase in digital content revenues.

2) The company increased 2011 pro forma guidance for revenue to $3.95 billion from $3.90 billion, and for EPS to $0.73 from $0.70.  Initial Q2 pro forma guidance is for revenue of $575 million, and EPS of $0.04.

3) We are increasing our 2011 estimates for revenue to $4.00 billion from $3.95 billion, and for EPS to $0.74 from $0.71. We are decreasing our 2012 pro forma estimate for revenue to $4.60 billion from $4.80 billion, but increasing our EPS estimate to $0.90 from $0.80 to reflect a higher mix of digital revenues.

4) The company remains dependent on a few franchises. Activision is increasingly dependent on  Call of Duty and Blizzard, which face competition from EA’s (NASDAQ:ERTS) firstperson shooter Battlefield 3 and MMO Star Wars: The Old Republic, respectively.

5) Management did not provide more detail on the next Call of Duty or on Project Beachhead, but updates are expected in the near future. Management would not confirm the 2011 release of Blizzard’s Diablo III, but a beta is expected in Q3.

6) 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.

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