The Hidden Truth Behind Activision Blizzard, Inc. (ATVI)’s Outlook

The joy of Activision Blizzard, Inc. (NASDAQ:ATVI) investors when they see a massive spike in the share price can be compared to parents’ happiness when their baby takes his first steps, since both of them are rare events. Despite delivering terrific results in the past one year, the stock had barely budged. But all that changed this time.

Activision posted yet another solid quarter and its shares took off towards the galaxy, rising as much as 11% after results. More surprisingly, Activision shares have gained around 26% in the past three months, something which I had expected but wasn’t entirely sure if such a thing can happen.

Also, investors celebrated the company’s terrific fourth-quarter with all pomp, ignoring a shallow outlook for the current quarter and the entire year. Its revenue and earnings expectation of $4.175 billion and $0.80 per share for the full year are quite behind consensus estimates of $4.56 billion and $0.97, apart from being behind the company’s own fiscal 2012 performance.

Ignorance is not always bliss

Since Activision is known for lowballing guidance, investors didn’t pay much attention to it. But were they right in doing so this time? They expect the stock to start running now, but it might fall right down like that baby who just took his first steps. Management seems concerned about how Activision might perform this year due to certain challenges, which indicates that the company might not be guiding low intentionally for the current year. Or will it turn out to be a faux pas? Let’s check.

After a strong 2012, Activision calls 2013 as a year of transition. The present generation of gaming consoles, the Microsoft Corporation (NASDAQ:MSFT) Xbox 360 and Sony Corporation (NYSE:SNE)’s PlayStation 3 in particular, are almost eight years old now. Activision is skeptical about how the next console transition might affect its performance.

Microsoft is expected to put the next iteration of its hugely popular game console on sale later this year in November, after Sony fires its own salvo in October. The Xbox 360 had taken the world by storm when it released years back, and it won’t be surprising if the next version is sold out once again like its predecessor on launch. Similarly, Sony has also found considerable success with the PS3 but might take the PS4 to another level by focusing on home entertainment in a big way, so as to give consumers an added incentive.