Activision Profit Rises; Outlook Is Cut

Times Staff Writer

Video game publisher Activision Inc. on Wednesday reported record revenue and profit for its fiscal third quarter but slashed sales projections nearly 25% for the year ahead, citing fundamental shifts in the $10-billion U.S. market.

The Santa Monica firm had net income of $44.3 million on revenue of $378.7 million in the quarter ended Dec. 31. A year earlier, it posted $39.1 million in profit on revenue of $371.3 million.

On a per-share basis, however, Activision reported earnings of 63 cents a share, down 4.5% from 66 cents a year earlier.


Activision shares lost 35 cents to $14.02 in regular trading on Nasdaq and dipped as low as $13.35 in after-hours sessions after the announcement.

Ron Doornink, Activision president, said the company was caught in a competitive avalanche of more than 350 new titles this holiday season.

While its “Tony Hawk Pro Skater 4” game sold well, with $22.8 million in retail sales in December, Activision’s other products drowned in the flurry of new video games.

“They had a lot of titles that underperformed,” said Michael Wallace, analyst at UBS Warburg, which does not own Activision shares but has done investment banking business with the company in the past. “They had snowboarding, BMX and wake-boarding games trying to ride the coattails of ‘Tony Hawk,’ but none of them amounted to much.”

To get Activision back on track, Doornink said the firm canceled half-a-dozen games and delayed the release of 25 other titles, including five games slated for release in the next two months, to improve their quality.

Activision expects the changes, coupled with soft consumer spending, to shrink sales 25% from a previously estimated $1 billion in fiscal 2004 to about $750 million, Doornink said.


That’s substantially less than this fiscal year’s revenue, which is expected to hit $839 million. Activision forecast earnings of 91 cents a share for its fiscal year ending March 31.

“Activision is going to have a challenging couple of quarters,” said Edward Williams, analyst at Gerard Klauer Mattison, which does not own Activision shares and hasn’t done banking with the firm. “But it appears to be laying the groundwork for a better 2004.”