Activision Posts Bumper Q3 Revenues, Warns On Outlook

Major video game publisher/developer Activision today announced preliminary financial results for the third quarter ended December 31, 2006, revealing increased revenue for the period, while simultaneously lowering fourth quarter expectations due to the ongoing stock option review. The company's revenue was $822.8 million, up from the $816.2 million reported during the same period last year, and beat the previously announced estimate of $600 million. Increased sales for the period was driven largely by the release of four key Activision titles: Call of Duty 3, Marvel: Ultimate Alliance, Tony Hawk's Project 8, and Guitar Hero II. Activision officials announced that the quarter represents the largest and most profitable quarter in the company's history, an outcome representatives attribute to better-than-expected consumer response to its holiday releases, as well as the strength of its distribution business. (No profit/loss statements were officially given, due to continuing investigations into Activision's options backdating.) However, the company added that it anticipates that its fourth quarter results will be “significantly impacted” by legal expenses relating to its internal review of historical stock option practices, as well as its delay of Enemy Territory: Quake Wars until fiscal year 2008. Because of this, Activision announced that it now expects fourth quarter revenues of $170 million, rather than the previously announced $175 million. In July 2006, Activision revealed that it had become the subject of a lawsuit from a shareholder over what was described as "purported improprieties in the Company's issuance of stock options", possibly relating to the currently hot topic of option backdating. The Securities and Exchange Commission (SEC) also stated at that time that it had launched its own formal investigation into the company's options practices. However, for the entire fiscal year 2007, Activision increased its net revenue outlook to $1.37 billion, as compared to its prior outlook of $1.15 billion, based on this third quarter's positive performance. The company also restated its fiscal year 2008 net revenue outlook, which is expected to exceed $1.6 billion. “Net revenues for the third quarter of fiscal 2007 are expected to be the highest in Activision's history,” commented Robert Kotick, chairman and CEO of Activision. “Our results were driven by a smaller, high-quality game slate that was anchored by four key games - Call of Duty 3, Marvel: Ultimate Alliance, Tony Hawk's Project 8, and Guitar Hero II." He concluded: "We remain optimistic about the long-term opportunities afforded by the new consoles, although we are cautious of the many risks that still exist as we transition from the current-generation console and handheld systems to the next-generation of hardware.”