Activision Droops, Predicts Reduced Outlook

Author: by Frank Cifaldi, Simon Carless

Major game publisher and developer Activision has announced decreased third quarter profit and increased revenue for the third quarter of fiscal year 2006 compared to the previous year, but has missed analyst estimates, as the game console hardware transition plaguing many also caught up with the firm. Net revenue for the quarter was reported at $816.2 million, 20% higher than the previous year's $680.1 million. Meanwhile, net income for the quarter was $67.9 million, a significant drop from the previous year's earnings of $97.3 million, and also lower than analyst expectations. Though some highlights for the firm included Call Of Duty 2, the #2 best-selling PC game in the U.S. for the quarter and the #1 Xbox 360 title in the U.S. for the quarter, as well as Gun's performance as the #1 best-selling game based on a new intellectual property in the U.S., the company's profits still dipped notably, with Michael Griffith of Activision's publishing group particularly singling out Gun and True Crime: New York City as titles that performed below expectations. Activision chairman and CEO Robert Kotick commented that he was "disappointed with our earnings performance this quarter which was the result of weaker than expected market conditions in the U.S. and Europe due to the transition from current-generation consoles to the next generation of video game systems." Kotick maintains that Activision's future is bright, however: "In the long term, we are planning for market growth that historically follows the introduction of new console hardware. To leverage this future growth and prepare for fiscal 2008, which we expect will be the biggest year in Activision's history, we will continue to focus on investment in our product development resources and intellectual property portfolio, growing our international operations and optimizing our worldwide cost structure and resource allocation." Looking forward, the company revised its outlook for the fiscal year 2006, now expecting net revenues of $1.405 billion to $1.415 billion, and predicting drastically reduced net revenues of slightly over $1 billion for the 2007 fiscal year, which ends March 31, 2007. This shows a significant lack of confidence in this year's transitional video game market. However, the company did note that, for fiscal year 2008, when next-gen consoles such as the PlayStation 3 and Revolution should have more significant installed bases, the company expects net revenues to exceed $1.6 billion. In the accompanying conference call, Activision also revealed that three PlayStation 3, four Xbox 360, 5 PSP and one Revolution game will ship during the transitional fiscal 2007 year. The company's stock did not take especially kindly to the news of reduced outlook - after being up marginally on the day, after-hours trading saw Activision's share price down almost a dollar to $13.38.