Activision Blizzard Inc. (ATVI - Free Report) is set to report first-quarter 2017 results on May 4. Last quarter, the company delivered a positive earnings surprise of 19.44%. The company has delivered positive earnings surprises in each of the last four quarters with an average beat of 33.88%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Increasing digital revenues and continued strength in titles like Call of Duty should cushion earnings in the first quarter. Also, Overwatch should continue to add to sales numbers. More importantly, the acquisition of King Digital should continue to boost results.

Activision is aggressively working on becoming a media entertainment giant, somewhere on the lines of The Walt Disney Company. Apart from launching a movie studio, the company is also strengthening its presence in the lucrative e-sports market. Recently, Activision announced the launch of Overwatch e-sports league. Plus, it announced a new consumer product division to be spearheaded by ex-Walt Disney executive, Tim Kiplin. 

Shares of Activision have registered impressive growth in the past one year. The stock generated a return of 54.50% compared with the Zacks Toys/Games/ Hobbies Product industry’s gain of 35.60%.

Nevertheless, higher adoption of free-to-play games and significant competition from the likes of Electronic Arts (EA - Free Report) , Take Two Interactive (TTWO - Free Report) and Glu Mobile remain the near-term headwinds. Also, an uncertain macro-economic outlook is adding to its woes as video games form a part of discretionary spending. Also, the company’s dependence on a handful of mega franchises (Call of Duty, World of Warcraft) for the lion’s share of its revenues makes it highly vulnerable.

For first-quarter 2017, Activision expects GAAP revenues of $1.55 billion and earnings per share of 25 cents per share. On a non-GAAP basis, revenues and earnings are expected to be $1.550 billion and 51 cents per share, respectively. Deferral revenues are expected to be negative $500 million.

Earnings Whispers

Our proven model does not conclusively show that Activision is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Activision’s Earnings ESP is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate stand at 16 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Activision’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or #5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Activision Blizzard, Inc Price and EPS Surprise

Activision Blizzard, Inc Price and EPS Surprise | Activision Blizzard, Inc Quote

Stock to Consider

Here is a stock, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Moody’s Corp. (MCO - Free Report) has an Earnings ESP of +7.38% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.