February 8, 2013 / 1:16 AM / 5 years ago

Activision rides "Call of Duty" to strong quarter

(Reuters) - Activision Blizzard Inc’s (ATVI.O) earnings beat Wall Street expectations after its “Call of Duty” and “Skylanders” titles had blockbuster holiday sales, shoring up investor confidence in the world’s largest videogame publisher despite a cautious forecast for 2013.

The videogame maker also forecast a first-quarter profit above industry analyst targets, guiding to earnings, excluding items, of 10 cents a share, versus an average forecast of about 9.7 cents.

Shares of Activision were up 5.5 percent to $12.72 in after-hours trading, from a close of $12.06 on the Nasdaq.

The company forecast earnings for the calendar year 2013 at 80 cents, below the Street’s view of 96 cents, according to Thomson Reuters I/B/E/S.

While Activision is being “appropriately cautious” going forward, it could easily achieve its earnings forecast, said Sterne Agee analyst Arvind Bhatia.

“This is classic Activision - they beat and provide conservative guidance, then they execute and try to beat their guidance,” Bhatia said.

Fourth-quarter non-GAAP revenue, adjusted for the deferral of digital revenue and other items, rose 8.3 percent to $2.6 billion from $2.4 billion a year ago, surpassing Wall Street’s average revenue forecast for $2.44 billion.

And non-GAAP income was $891 million, or 78 cents per share, in the fourth quarter, compared with $725 million, or 62 cents a year earlier. This beat industry analyst estimates of 72 cents, according to Thomson Reuters I/B/E/S.

As more gamers migrate to free mobile offerings on tablets and smartphones from $60 console games, the video game industry has seen revenues drop consistently since last year.

“We encounter new threats from unproven business models, and we compete against new category entrants,” Activision’s CEO Bobby Kotick said in a post-earnings call with analysts.

New game hardware could potentially boost sales in the troubled video game sector, according to analysts. Consumers are holding back from buying hardware and software as they wait for rumored next-generation versions of Sony Corp’s (6758.T) PlayStation and Microsoft Corp’s (MSFT.O) Xbox, expected later this year.

The coming year would be a “transition year,” Kotick said, referring to the new video game consoles that could soon enter the market.

“We aren’t immune to unfavorable market dynamics, but we have navigated transitions many times before and we are well prepared to do so again,” Kotick said.

Despite a weak market, first-person shooter “Call of Duty: Black Ops 2” that hit store shelves in November reached $1 billion in global sales within 15 days of its release.

    Child-friendly franchise “Skylanders,” which has games sold with physical toys that come to life on screen when they are connected to video game consoles, generated revenues of approximately $1 billion to date since its launch in October 2011, Kotick said.


    Activision’s next major release “StarCraft II: Heart of Swarm” - an expansion pack from its hugely popular sci-fi strategy game franchise - is set to go on sale on March 12.

    This week, Activision announced “Skylanders SWAP Force,” the next title from its popular children’s franchise is expected to release in the second half of the year.

    ”Clearly the line-up is lighter than 2012 which is reflected in the guidance, Bhatia said.

    Last summer, the company said it plans to take “Call of Duty” to China as a free-to-play online game in partnership with Tencent Holdings Ltd (0700.HK), an Internet and wireless services provider in China.

    Activision’s executives did not provide details about the release window of its “Call of Duty” online game, when asked by analysts on the post-earnings call.

    Subscribers of “World of Warcraft,” Activision’s most profitable business and the source of a steady stream of subscription-based revenue, dropped slightly to 9.6 million from 10 million last quarter, the company said.

    Reporting by Malathi Nayak; Editing by Phil Berlowitz, Tim Dobbyn and Lisa Shumaker

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