Activision picks up the beat

Times Staff Writer

Activision Inc. rocked its fiscal second quarter, amped by sales of its “Transformers” video game and “Guitar Hero” franchise.

The game publisher strummed up revenue of $317.7 million in the quarter ended Sept. 30, up 69% from a year ago, stomping Wall Street’s expectations of $262 million, according to analysts polled by Thomson Financial.

“They had a stellar quarter,” said Michael Pachter, a Wedbush Morgan Securities analyst.

The Santa Monica-based company’s expenses grew, largely because of the costs of acquiring Red Octane, the developer of “Guitar Hero,” and Bizarre Creations, the British developer behind the “Project Gotham Racing” series. Still, Activision swung to a $700,000 profit, or break even on a per share basis, beating analyst expectations of a 2 cents a share loss.


The company lost $24.3 million, or 9 cents a share, a year earlier.

Activision raised its financial estimates for the current quarter, promising to top $1 billion in sales for the first time and earn 51 cents a share. The biggest drivers for the quarter, which includes the holiday shopping period, are expected to be “Guitar Hero III,” which launched Oct. 28, and “Call of Duty 4: Modern Warfare,” which went on sale Monday.

Chief Executive Robert Kotick said in a conference call with analysts that sales of “Guitar Hero III,” which lets players pretend to be rock stars, exceeded $100 million in its first week in North America, far more than the company had expected.

“It’s one of the few video games that have infiltrated popular culture. Even we didn’t anticipate the popularity of the game in the first week,” he said.


For its full fiscal year ending March 31, Activision projected revenue of $2 billion and per share earnings of 55 cents. As the world’s second-largest independent video game publisher, Activision has been steadily distancing itself from its nearest rivals and closing the gap with the industry’s top dog, Electronic Arts Inc., which last week estimated annual sales between $3.8 billion and $4 billion.

“Activision is almost as big as their next two competitors combined,” said Pachter, referring to UbiSoft Entertainment and THQ Inc., each of which has estimated annual sales of just over $1 billion.

Activision’s results, however, did not mollify investors, who pushed its down 41 cents to $22.41 in after-hours trading following the earnings release. The stock fell 15 cents to $22.90 during the regular session.

Analyst John Taylor of Arcadia Investments said the stock may be a victim of the company’s success. Activision shares have risen nearly 33% this year.


“For Activision, the tug of war is between investors who are celebrating upside surprises in the near term versus those who are concerned that the better the company does now, the harder it will be next year to beat” this year’s performance, Taylor said.

“In the industry, it’s called, ‘How do you feed the elephant?’ This has been so good and so above expectations, it just sets the bar that much higher for next year.”

CEO Kotick said Activision’s 2008 lineup would include games based on the “James Bond” franchise, “Kung Fu Panda” from DreamWorks Animation SKG and a refreshed slate of “Guitar Hero,” “Tony Hawk” and “Call of Duty” titles. It also stands to benefit from the industry’s projected double-digit revenue growth as holiday shoppers snap up more consoles and look to publishers to supply them with games, he said.

“You’re looking at a much larger market next year,” he said.