Activision (NASDAQ:ATVI) is no Electronic Arts (NASDAQ:ERTS), but it may be the next-best thing.

In the footsteps of fellow Motley Fool Stock Advisor pick Electronic Arts (David Gardner tapped both), Activision reported a blowout holiday season. Underground reigns king. EA's Need for Speed Underground and Activision's Tony Hawk's Underground (THUG) both hit big on Sony (NYSE:SNE) PlayStation 2 and Microsoft (NASDAQ:MSFT) Xbox, claiming the top two spots.

More impressively, Activision had three of the five best-selling titles in the quarter, including two brand new franchises -- True Crime: Streets of L.A. and the leading PC game, Call of Duty.

Those successes drove third-quarter revenue 34% higher year over year to $508.5 million. Meanwhile, net income soared 74% to $77 million, or $0.79 per share -- pounding the company's own December forecast of $0.67. Not only did Activision raise fourth-quarter and full-year expectations, it forecast better-than-expected full-year 2005 earnings.

Until recently, I wasn't crazy about Activision. For me, the uneven quality of its games made for a weak brand -- especially compared to Japanese developers Capcom, Namco, and Konami (NYSE:KNM), much less EA. But, in addition to a growing stable of winning franchises, including Tenchu and Spider-Man, Activision's super-strong balance sheet helps solidify its position as a major player in what is both a growing and consolidating industry.

Clearly, with $552 million, over $6 per share, in cash, Activision, along with EA and Take-Two (NASDAQ:TTWO), is in a position to pick up smaller, promising but financially weak developers. Activision already scooped up Infinity Ward, the company behind Call of Duty -- back in October.

Not surprisingly, Activision jumped 8% to $19.44 in after-hours trading yesterday. Even so, with its strong cash position and all the options that affords, I don't hate Activision here at just over 20 times fiscal 2005 earnings -- even as we near the end of the current console cycle.

Give us your own take on the Activision and Video & PC Games discussion boards. Jeff Hwang can be reached at JHwang@fool.com.