Despite having to maneuver around competing holiday uber-hits such as Microsoft's (Nasdaq: MSFT ) Halo 2, Take-Two Interactive's (Nasdaq: TTWO ) , and Electronic Arts' (Nasdaq: ERTS ) Need for Speed Underground 2, Activision (Nasdaq: ATVI ) managed to turn in a surprisingly strong holiday third quarter.
Activision saw third-quarter net revenues climb 34% from the year-ago quarter to $680.1 million, helping net income rise 26% to $97.3 million, or $0.63 per share. Those figures easily cleared the analysts' $0.56-per-share earnings estimate on $617.0 million in revenues.
Earnings growth lagged sales growth, while sales and marketing costs jumped 80% to $105.2 million, as the company moves to build long-term brand value for its game franchises.
The revenue growth is particularly impressive given that Activision had three of the five top-selling titles last year in Tony Hawk's Underground, True Crime: Streets of LA, and the PC hit Call of Duty. This year, the company benefited from strong sales of Tony Hawk's Underground 2, the introduction of Call of Duty on the Microsoft Xbox and Sony (NYSE: SNE ) PlayStation 2, Doom 3, Rome: Total War, and Spider-Man 2 for the just-released Nintendo DS handheld system.
Looking ahead, Activision expects to earn a penny per share in its fiscal fourth quarter. The company raised its revenue guidance from $128 million to $150 million, despite pushing back the Xbox release of iD Software'sDoom 3 until the first quarter.
As a result, the company expects to tally diluted EPS of $0.87 on $1.352 billion in net revenues for its full fiscal 2005. For fiscal 2006, Activision expects revenues to increase 5.7% to $1.43 billion, while earning $0.91 per diluted share. That figure excludes the effect of stock options expense.
Activision also said that it expects to earn $0.02 per share in its fiscal first quarter on $215 million in net revenues.
In all, Activision turned in a very impressive quarter, given the stiff competition this holiday season.
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Fool contributor Jeff Hwang owns shares of Electronic Arts.
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