Activision Gets in the Game

Activision's (Nasdaq: ATVI) preliminary third-quarter results sounded exciting in many ways. The video-game publisher also raised its forecast for the current quarter and the year. But for whatever reason, there was a damper on the stock. Regardless, it's clear that these are exciting times for companies involved in gaming, considering the current strength around new consoles.

Bear in mind that these are preliminary results, since Activision is still undergoing a review of its stock-options practices, and so there could be changes to its results. Fiscal third-quarter net income, which includes the holiday season, increased 84% to $124.8 million, or $0.41 per share ($0.42 per share excluding the impact of equity-based compensation). Revenues increased to $822.8 million.

That's a far cry from this time last year, when the company reported a drop in its third-quarter profit. Of course, that all goes hand-in-hand with the idea that video-game publishers such as Activision and rivals Electronic Arts (Nasdaq: ERTS), Take Two Interactive (Nasdaq: TTWO), and THQ (Nasdaq: THQI) are cyclical.

Meanwhile, Activision raised its outlook for the fourth quarter and the full year. It increased its revenue outlook for fiscal 2007 to $1.4 billion from $1.37 billion, and it raised its EPS outlook to $0.21 per share, excluding the effects of equity-based compensation, $0.26 per share.

Shareholders shouldn't disregard Activision's balance sheet, either; at the end of the quarter, it sported about $800 million in cash and short-term investments and no debt.

Activision pointed to the success of many of its best-known franchises, such as Call of Duty, Tony Hawk, and Guitar Hero. It also said that it has secured top-three publisher status in the U.S. for the Sony (NYSE: SNE) PS3, Microsoft's (Nasdaq: MSFT) Xbox 360, and Nintendo's Wii, and it said it's the only one to have that ranking across all three consoles.

You might recall that when Electronic Arts reported its quarterly earnings recently, it said it was going to step up its efforts to have good offerings from the Wii, which has been wildly successful thus far. Activision said in its conference call that it recognized the opportunity early and had one of the largest lineups at the launch.

Meanwhile, Activision voiced some of the themes that many of us have been contemplating for a long time: the big opportunities in gaming. In its conference call, Chairman and CEO Bobby Kotick said fiscal 2008 will mark "a new era in gaming," with double-digit industry growth expected and increasingly diversifying audiences for games on platforms of many stripes.

Although investors didn't seem too impressed with Activision's results -- preliminary as they might be -- it's kind of hard not to be excited about the changes that are taking place in the industry right now. Judging by some of Activision's comments, it seems pretty well positioned to take advantage of the trends as they heat up.

For related Foolishness, see the following articles:

• Fool contributor Steven Mallas loves Activision.
• Here's rival EA's latest quarterly results.
• We took a look at 2006 in review at Activision.
• Take a look at last quarter's Fool on Call for Activision.

Activision and Electronic Arts are both Motley Fool Stock Advisor recommendations. To see what other stocks have been recommended to subscribers of the market-beating newsletter, take a free 30-day trial today.

Microsoft is a Motley Fool Inside Value pick.

Alyce Lomax does not own shares of any of the companies mentioned.