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Activision Blizzard Banks on Digital Sales

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Thanks to strong spikes in digital sales and top-selling games, Activision Blizzard (Nasdaq: ATVI  ) reported a strong second quarter and beat analysts’ estimates. With anticipation brewing for its Diablo 3 release, the company is a key player to follow in the quickly growing interactive entertainment software industry.

Net revenues for the quarter ended June 30 soared to $1.1 billion, compared with $967 million a year earlier. Profit rose to $335 million, or $0.29 per share, compared with $219 million, or $0.17 per share, in the same quarter last year.

The Santa Monica, Calif., publisher's portfolio includes the Guitar Hero, Call of Duty, Tony Hawk, Spider-Man, X-Men, StarCraft, Diablo, and Warcraft franchises.

Digital sales of such cult classics as Call of Duty and World of Warcraft, which holds the title of the top multiplayer role-playing game with about 11.1 million subscribers, made up 37% of its total revenues, or $423 million. That compares with $332 million, or 34% of its revenues, for the same period a year earlier.

Considering that retail sales in the video-game industry decreased 6% for the first half of 2011 in the U.S. and Europe, Blizzard's heavy reliance on digital distribution is a smart move. Retail sales of software for Nintendo's Wii and handheld platforms tumbled 15% during the first half of the year, while software sales for high-def platforms, including Microsoft's (Nasdaq: MSFT  ) Xbox 360 and Sony's (NYSE: SNE  ) Play Station 3 consoles, edged up 3%.

Despite that slump, Blizzard's retail segment rose 13% during the quarter, comprising $660 million of the company's revenue.

Blizzard's quarterly sales are neck and neck with top competitor Electronic Arts (Nasdaq: ERTS  ) , a maker of addicting sports-game franchises that also benefitted from digital sales and reported net revenues of $999 million during in its most recent first quarter, up from $815 million a year earlier.

In July, Blizzard launched World of Warcraft: Cataclysm in China, which has already resulted in an expanded subscriber base, and Call of Duty: Black Ops Annihilation content pack for PS3 and PC, with plans to release a few more titles before the third quarter is up.

Its Call of Duty: Black Ops title was No. 1 in U.S. And Europe during the first half of the year, based on sales from retail channels.

Blizzard CEO Michael Morhaime refrained from naming a launch date for the surefire hit Diablo 3, a dark fantasy follow-up experience to Diablo's most recent release in 2000, but said during the quarterly conference call that the company is working hard to ship the game before the year is up.

With a better-than-expected first half of the year, the company is now forecasting $4.18 billion in sales for the year, up from its former $4.05 billion estimate.

If none of this gives you the itch to buy, it may still be worthwhile to keep an eye on Activision Blizzard and the other companies in this sector. You can add any of these stocks to your Foolish watchlist by clicking the "+" icons above. Don't have a watchlist yet? Set one up today for free.

Fool contributor Tierney Plumb holds no positions in any of the stocks mentioned. The Motley Fool owns shares of Microsoft and Activision Blizzard and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Nintendo, Activision Blizzard and Microsoft, creating a bull call spread position in Microsoft, and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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