Activision Blizzard's profit rises on digital sales

NEW YORK Mon May 9, 2011 7:37pm EDT

NEW YORK (Reuters)- Activision Blizzard posted higher profit and revenue in the fourth quarter, driven by sales of online games, and raised its full-year earnings outlook, sending its shares higher in after-hours trade.

The company raised its full-year 2011 earnings outlook to 73 cents per share from 70 cents. This beat analysts' average estimates of 72 cents per share.

It estimated revenue of $3.95 billion this year, up from its previous $3.90 billion forecast, and in line with analysts' average estimates, according to Thomson Reuters I/B/E/S.

The company's operating margins rose to 29 percent from 23 percent a year earlier, which Janco Partners analyst Mike Hickey said is evidence that its strategy of focusing on its highest performing titles was succeeding.

Last quarter, Activision Blizzard said it was shutting down the "Guitar Hero" video game franchise, as well as its "True Crime" series, which sent its shares down and worried analysts and investors that the company's portfolio may be stretched too thin.

Monday's results as well as the higher outlook may have soothed some investor concerns about the company whittling down its games slate, Hickey said.

"Why clutter your margins with less compelling properties?" Hickey said, adding that "sometimes when you want to drive margins, you focus on your best intellectual property."

In an interview, Chief Executive Bobby Kotick also pointed to the company's higher margins, which he said were driven by the increase in digital revenue. Digital revenue generally has higher margins than packaged games on discs sold in stores.

"Our digital content has allowed us to have some of the best operating margins in interactive entertainment," Kotick said.

The company's digital revenue, which comes from online games such as "World of Warcraft," increased by $100 million year over year. He said sales of the expansion pack "First Strike," which accompanies "Call of Duty: Black Ops," were up 20 percent from sales of "Call of Duty: Modern Warfare 2" during the year-ago period.

For the quarter ended March 31, Activision Blizzard said income rose to $503 million, or 42 cents per share, from $381 million, or 30 cents per share, a year earlier.

Adjusted for digital revenue and restructuring costs, the company said earnings per share was 13 cents, up from 9 cents a year earlier. This beat analysts' average estimates of 8 centers per share, according to Thomson-Reuters I/B/E/S.

Sales rose 11 percent to $1.45 billion from $1.3 billion a year earlier. On an adjusted basis, sales grew to $755 million from $714 million a year earlier.

Activision Blizzard shares rose 3 cents at $11.56 in after-hours trading on Nasdaq.

(Reporting by Liana B. Baker; Editing by Richard Chang and Lisa Shumaker)

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