Activision Blizzard will report its first-fiscal-quarter earnings on Wednesday, May 9, after the market close. This will come two days after its arch-rival Electronic Arts reports its earnings, and the two together will paint a better picture of the grudge match between EA’s Star Wars: The Old Republic and Activision Blizzard’s flagship online game World of Warcraft.

Activision Blizzard will, of course, want to show that its juggernaut money-maker, World of Warcraft, has kept its status as king of the hill in the massively multiplayer online (MMO) space, while also proving that the hit Call of Duty franchise has financial legs with Modern Warfare 3, Black Ops II, and the new Elite multiplayer service.

Wedbush Securities’ analyst Michael Pachter expects Activision to report results at or above its current estimates for revenue, at an estimated $570 million with an earnings per share (EPS) of $0.08. This is higher than the consensus of other analysts, who expect to see revenues of $552 million and an EPS of $0.04. Pachter also expects to see an overall decline in Activision Blizzard’s publishing revenue of approximately 30 percent, better than that of the larger market decline of approximately 40 percent as reported by market-research firm NPD Group.

Pachter notes that this shortfall should be made up for with new Call of Duty Elite subscriptions (an estimated $22 million), the first Call of Duty: Modern Warfare 3 downloadable-content pack, and $30 million in accessories for Skylanders (a game with separately purchased collectible toys), which is not accounted for by the NPD Group.

Activision Blizzard share valuations dropped a bit on Thursday, closing at $12.66 per share, while remaining valued at approximately $14.31 billion. While this shows the publisher to be much larger than rival EA (valued at $5.26 billion), there are still factors that can affect even a big company.

Pachter points to an increasing reliance on Call of Duty and World of Warcraft, noting that the Activision arm continues to commit more and more financial resources to the military first-person-shooter (FPS) franchise, while Blizzard focuses more on the upcoming Diablo III, Starcraft II expansions, and its successful MMO. In addition, says Pachter, while the futuristic Black Ops II game should help the Call of Duty franchise maintain its market share, it could well succumb to FPS fatigue as the market continues to become saturated with similar titles.

Activision could, of course, exceed even these measured positive expectations. Pachter says additional success could come from the multiple releases by Blizzard, if Call of Duty packaged goods do better than expected at retail, and if the upcoming Skylanders expansion, Giants, outperforms the original game. Finally, Pachter predicts that Activision Blizzard’s stock price will go as high as $19.00 per share, which is about 16 times the company’s expected 2012 earnings per share.

Traditionally, Activision Blizzard has maintained a strategy of culling its titles ruthlessly to focus its resources on what works. While it maintains a leadership position in online console games, it hasn’t experimented as much as EA in the realm of social, mobile, and free-to-play online games. EA hasn’t had huge successes in those areas, but at least it has spent a lot of time learning lessons. Those new markets represent the big expansion opportunities in the games business, while the core console market — where Activision Blizzard focuses most — has been shrinking. How Activision Blizzard and EA manage these industry-wide transitions will determine who comes out on top in the long run.

Blizzard’s World of Warcraft has shown weakness in recent quarters, dropping to 10.2 million paying subscribers compared to past highs of around 12 million. The Old Republic may have taken some users away. But other online game worlds such as Trion’s Rift (which is soon bound for China) and En Masse Entertainment’s Tera are also likely to peck away at the big game.

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