Yesterday, Activision released its year-end financial results, and while the company reported a $286 million loss for the holiday quarter, it still managed to post a relatively rosy full-year profit of $113 million. Wall Street responded positively to the results--Activision stock was up nearly 10 percent to $11.08 in midday trading today--but analysts were downright euphoric.
Wedbush's Michael Pachter said Activision's results were well above expectations and was particularly impressed at the publisher's ability to meet its initial guidance estimates despite a tough economic environment and the delays of three major titles (Singularity, Blur, and Starcraft II).
Pachter cautioned that Activision's performance set a high bar to measure up to in the new fiscal year. The analyst is particularly concerned about Activision's ability to increase revenues, given that it is expecting lowered sales from its distribution business, as well as Call of Duty and Guitar Hero games.
However, Pachter said the company's catalog of Blizzard titles could more than make up for slumping revenues elsewhere in the company. With the release of both Starcraft II and World of Warcraft: Cataclysm, Pachter expects Blizzard to sell a whopping 12 million games during the year, including legacy sales of previously released games.
The analyst didn't break down sales projections for individual Blizzard games, but Cataclysm and catalog sales of World of Warcraft and its prior expansions apparently play a large role in his Blizzard-wide estimate. Pachter said that Activision's three delayed titles combined are expected to bring between $200 million and $250 million in revenues, suggesting total sales of about 5 million copies if the average selling price was $50.
Pacific Crest Securities' Evan Wilson was somewhat more optimistic about Starcraft II, depending on when Activision manages to release it. Currently, Wilson has the real-time strategy sequel penciled in for sales of 6 million copies, though he cautioned that could slip to 2 million in 2010 if Activision pushes it back into the holiday quarter.
As for the rest of Activision's slate of upcoming titles, Wilson was more reserved with his praise, saying True Crime, Blur, and Singularity "have not yet excited us." Likewise, he said new Spider-Man, Transformers, and James Bond games "do not look poised to exceed the very high bar that has been set for games to achieve critical and commercial success." Growing the Call of Duty franchise could also be a point of concern, as Wilson estimated that last year's Modern Warfare 2 has shipped 16 million copies worldwide.
Pessimistic as that might sound, Wilson was still very high on the publisher. Comparing Activision with the rest of the recently struggling gaming industry, the analyst likened the publisher to "a mansion in a trailer park." He added that the company's results "reminded us again why it is the best company in the sector."
Signal Hill's Todd Greenwald was likewise impressed, calling Activision "the key name to own in the video game space." Greenwald was particularly blown away by the publisher's operating margins. Where Electronic Arts and THQ chalked up $0.11 and $0.09 of operating profit for every dollar of sales, Activision said its operating margin surpassed $0.35 on the dollar.