It's been a tough transition period for many video game developers with the market shifting to new console platforms. The latest results from Motley Fool Stock Advisor pick Activision (NASDAQ:ATVI) indicate positive things on the horizon.
Sales in the fourth quarter came in at $188.1 million, blowing past consensus analyst estimates that called for a little more than $131 million. The stellar revenue performance helped the company achieve a narrower-than-expected loss for the period of $0.03 per share versus an anticipated $0.08.
Better-than-expected results from strong Xbox 360 game sales are one reason for the strong quarter. CEO Robert Kotick noted that the company currently has the No. 1 game title on the next-generation Xbox 360 platform in Call of Duty 2. This game became its most successful franchise in 2006, exceeding such stalwart names as Doom and Tony Hawk. In the quarterly earnings conference call, Activision indicated that it plans to capitalize on this success by expanding the shelf life of the title through offering new levels that can be downloaded online via the Xbox 360.
Future prospects are where the company really looks enticing. Consider that for fiscal 2007, Activision is projecting to achieve revenues of roughly $1 billion. In fiscal 2008, however, management indicated in the call that sales will likely top an astounding $1.6 billion -- that's 60% year-over-year sales growth. Management could not reveal the game titles that it has planned for fiscal 2008, but based on some of the licensing deals that it commented on in the call, we can assume what a few of them might be.
Earlier this week, Activision was awarded the rights to develop games based on the James Bond license through 2014. This franchise is already one of the most successful in the industry, with over 30 million units sold to date. Activision believes that James Bond will help the company increase its penetration into the European market. Additional license agreements likely to contribute to a strong 2008 are those with Marvel (NYSE:MVL), in conjunction with SonyPictures, for both Spider-Man and X-Men that will last through 2017, Dreamworks Animation (NYSE:DWA) in a multiyear deal for several upcoming feature films like Bee Movie, and Hasbro (NYSE:HAS) for its Transformers franchise.
Beyond fresh titles, expect the company in fiscal 2007 and beyond to employ a more efficient game development strategy. Activision plans on making greater use of outsourcing, particularly for much of the artwork on future titles. This will reduce costs while maintaining current quality levels.
With the kind of growth Activision is projecting, this stock deserves a serious look just in terms of top-line potential alone. Plus, factor in the likelihood of improving cost controls through the deployment of outsourcing strategies, and there's a good bet that bottom-line profits will be as juicy. If the company isn't already on your watch list, plug in and take a closer look.
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Activision, DreamWorks Animation, Marvel, and Hasbro and are all Motley Fool Stock Advisor picks. Take the newsletter that brings you the stocks at the very top of David and Tom Gardner's list for a 30-day free spin.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
