I love Activision (NYSE: ATVI ) . Why? Well, simply put, I understand the power of video games as an entertainment medium on a go-forward basis. They're not going away. They've become integrated into the culture to the point where people from ages 5 to 85 are enjoying a good round of Tetris or a chapter or two of Resident Evil 4. Annual revenues tied to this sector have been pegged at $30 billion worldwide.
This is why I'm in love with Activision and want to send the company a Foolish Valentine: The long-term prospects of the video-game sector are going to offer great cash-flow opportunities for publishers with valuable software franchises. Ever hear of Tony Hawk? Activision has produced multiple titles based on the skateboarding star. How about the Call of Duty series of games? They offer a beautifully rendered wartime experience, placing the user in the thick of historical battle settings. The Guitar Hero brand, an incredibly popular rock 'n' roll simulator, was a smart acquisition on the publisher's part. You can bet that masses of teenage wannabes are indulging their arena fantasies with the game as you read this.
The franchises don't stop there. Now, I know everyone has heard of Marvel Entertainment's (NYSE: MVL ) Spider-Man. Peter Parker and his adventures have been featured in titles distributed by Activision over the past several years -- in fact, the Spider-Man 3 movie will be released this summer, as will the Activision game based on it. Oh, and let's not forget DreamWorks Animation (NYSE: DWA ) and its intellectual properties -- they've also been licensed by Activision. Games based on movies such as Shrek and Madagascar definitely add to the company's value. Plus, the third Shrek film also hits the screens this summer, so shareholders have that interactive adaptation to look forward to, and that should be enough to bring out the love for Activision.
In 2004, total revenues for the publisher were $948 million. In 2006, the top line was $1.5 billion. Earnings may have gone down the past few years as the industry transitioned to next-generation consoles such as Microsoft's (Nasdaq: MSFT ) Xbox 360, but because the next leg in the cycle should be upward, everything should be fine. The competition from THQ (Nasdaq: THQI ) and Take-Two Interactive (Nasdaq: TTWO ) , among others, will be stiff, but my hero Activision will win out in the end.
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Activision, DreamWorks Animation, and Marvel Entertainment are Stock Advisor picks. Microsoft is an Inside Value recommendation. Talk stocks with other investors and our analysts when you give our newsletters a try.
Fool contributor Steven Mallas owns shares of Activision and Marvel Entertainment. As of this writing, he was ranked 13,160 out of 21,781 investors in Motley Fool CAPS. Don't know what CAPS is? Check it out. The Fool's disclosure policy likes chocolates and champagne.