Wednesday, August 5, 2020

Activision Kills Estimates, But Stock Succumbs to Uncertainties

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News shaping
the markets today

     

What’s happening: Shares of Activision Blizzard declined in extended trading on Tuesday despite the videogame publisher reporting its second-quarter results and third-quarter guidance ahead of market expectations.

What happened: With people spending more hours gaming amid shelter-in-place orders, there has been a meaningful increase in purchases of virtual in-game content.

Activision's earnings report was released a day after archrival Take-Two Interactive reported solid growth in quarterly revenues. Despite Activision's blowout results and guidance, the stock was unable to hold gains in after-hours trading.

How were the results: The videogame giant reported growth in both sales and earnings for the second quarter, while exceeding consensus estimates.

  • Revenue surged to $1.93 billion, from $1.4 billion in the same quarter last year, and beat market expectations of $1.7 billion.
  • Net income came in at $580 million, or 75 cents per share, up from $328 million, or 43 cents per share, in the year-ago quarter.
  • Adjusted earnings of 97 cents per share were reported, ahead of the consensus estimate of 68 cents per share.

Why it matters: Following a sharp increase in videogame sales in the US, sales for June surged 26% to $1.2 billion, reaching the highest level in more than a decade.

Activision joined its rivals to report robust growth in bookings, with net bookings climbing to $2.08 billion in the second quarter, from $1.21 billion in the year-ago period. Analysts had expected growth, but their predictions were much lower, at $1.69 billion.

While “Call of Duty: Modern Warfare” delivered a remarkable performance in June, its reach was further enhanced by the launch of “Warzone”.

For the third quarter, management projected adjusted earnings of 75 cents per share on revenues of $1.8 billion, which came in significantly higher than the consensus view of earnings of 41 cents per share on revenues of $1.4 billion. The company also lifted its revenue outlook for 2020 from $6.9 billion to $7.63 billion.

Investor sentiment was hurt, however, by CEO Bobby Kotick’s remarks on the uncertain economic conditions, which could hamper the company’s lockdown-led boom.

How shares responded: Shares of Activision Blizzard fell 2.2% to $84.51 in after-hours trading after rising as much as 1.6% in extended trading. The stock has appreciated a whopping 45% year to date, significantly outperforming the S&P 500’s 2.3% gain.

What to watch: Given the strong growth in Activision’s bookings and sales last quarter, and management’s upbeat guidance for the year, investors will look out for any impediments to the company’s results going ahead. The market is concerned about the impact on videogame sales of the easing lockdown restrictions and people returning to their workplaces.

The Markets Today

     

Gold trading will be in focus today, after the yellow metal closed at a new record high in the previous session.

Context: Gold futures closed higher on Tuesday, as the decline in government bond yields and rise in covid-19 cases lifted demand for the precious metal. Uncertainties drove gold prices above the psychological barrier of $2,000 per ounce.

Details: Governments around the world flooding their economies with financial stimulus to avert an unprecedented recession has exerted pressure on their respective currencies. This, along with near-zero interest rates, has lifted demand for precious metals.

The US dollar index, which measures the greenback’s performance against a basket of major currencies, rose less than 0.1% to 93.387 on Tuesday, giving back gains recorded earlier in the session. Meanwhile, US Treasury yields slipped by 4.4 basis points to 0.52%.

After rising less than 0.1% on Monday, December gold spiked 1.7% to settle at $2,021 an ounce in the previous session. September silver also rose on Tuesday by 6.6% and settled at $26.028 an ounce, adding to Monday’s 1% gains.

In other metals, September copper slipped 0.6% to $2,8945 a pound, while October platinum gained 2.6% to end at $955.20 an ounce on Tuesday.

What to watch: Several economists are projecting gold prices to climb to about $3,000 an ounce in the next 18 months amid the covid-19 crisis. Markets will also keep a close eye on the Federal Reserve’s announcement of a fresh monetary stimulus.

Investors will continue to monitor the covid-19 figures, with the total number of cases exceeding 18.5 million globally.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.8%, 1% and 0.8%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain’s consumer confidence indicator, Canada’s balance of trade, Brazil’s services PMI and composite PMI, Argentina’s industrial production as well as the US MBA mortgage applications, ADP employment, balance of trade, services PMI, composite PMI, ISM non-manufacturing PMI and EIA’s crude oil stocks.