May 9, 2008 / 12:05 AM / 11 years ago

UPDATE 3-'Guitar Hero' helps Activision rock Wall Street

(Adds CEO comment in paragraphs 13-14, 16)

By Scott Hillis

SAN FRANCISCO, May 8 (Reuters) - Activision Inc (ATVI.O) posted a quarterly profit on Thursday that blew past expectations as demand for its “Guitar Hero 3” and “Call of Duty 4” video games made up for a complete lack of new releases.

The two games, released late last year, drove Activision to a profit, excluding stock-based compensation costs, of just under $55 million, or 17 cents per share, more than triple the average expectation of 5 cents among Wall Street analysts on Reuters Estimates.

Revenue was $602.5 million, towering 93 percent above a year ago and burying the average estimate of $373.6 million.

“It’s the ongoing popularity of ‘Guitar Hero’ and ‘Call of Duty’. It just shows what can happen in terms of performance when you have blockbuster hit titles,” said Colin Sebastian, an analyst with Lazard Capital Markets.

Shares of Activision rose 3.9 percent to $28.78 in extended trade from a close of $27.70 on Nasdaq, where they had gained less than 1 percent in the regular session.

Activision’s results were the latest piece of evidence that the video game industry is shrugging off the concerns about the broader economy weighing on other sectors.

“The video-game market fundamentals have never been stronger. There’s no evidence that this growth will slow,” Chief Executive Bobby Kotick told a conference call.

Activision’s results came the day after rival Take-Two Interactive Software Inc (TTWO.O) said its criminal action game “Grand Theft Auto 4” had pulled in $500 million in revenue in its first week, making it one of the biggest entertainment launches ever.

“I think it’s all about the games and if companies put out differentiated premium games then the gamers will scoop them up,” said Signal Hill analyst Todd Greenwald. “It’s as recession-proof as any business can be.”

Activision also said that for its current first quarter, it expected earnings of 13 cents per share, excluding special items, on revenue of $500 million. Wall Street analysts, on average, have forecast 13 cents per share on revenue of $493 million.

Those forecasts do not include results from the games unit of France’s Vivendi (VIV.PA), the maker of the popular “World of Warcraft” game that is merging with Activision in a deal expected to close by the middle of the year.

Activision plans three new “Guitar Hero” titles in 2008: one for Nintendo Co Ltd’s 7974.OS DS handheld device, an edition focusing on U.S. rock group Aerosmith, and a product ahead of the holidays that many speculate will feature more instruments like drums.

A key focus this year will be Europe, where the company is trying to whip up the same excitement for the “Guitar Hero” franchise that it enjoyed in the United States, Kotick said.

“Where we started seeing the market for ‘Guitar Hero’ explode in North America, we’re probably a year behind in Europe,” Kotick told Reuters.

The company also expects growth to come from movie-based games based on titles such as upcoming animated film “Kung Fu Panda” and the new James Bond flick, “Quantum of Solace”.

“It’s a great slate. It could be the best slate we’ve ever had in a lot of respects,” Kotick said.

Activision, which also makes the “Tony Hawk” skateboarding games and “Spider-Man” titles, competes with Electronic Arts Inc ERTS.O, which reports earnings next week, and France’s Ubisoft (UBIP.PA). (Editing by Braden Reddall and Carol Bishopric)

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