The market's rightly wondered why video game publishers haven't been more profitable in recent quarters, now that the game-console upgrade cycle seems to have hit its sweet spot. At least Activision (Nasdaq: ATVI) seems to be bucking the trends in a good way, judging by its fourth-quarter earnings.
Activision reported net income of $44.2 million, or $0.14 per share, compared to its year-ago net loss of $14.4 million, or a loss of $0.05 per share. Revenue increased a whopping 93% to $602.5 million, even though the fourth quarter wasn't even a holiday quarter.
Needless to say, Activision owed its strong fourth quarter to hit titles like Guitar Hero III and Call of Duty 4, both of which received particular credit for driving the impressive results. (February offered similar tidings.) Activision rattled off a series of achievements in 2008 in its press release; among other accomplishments, it increased its market share by 7.2 percentage points to 17.3%, according to data compiled by The NPD Group.
I've often wondered why many video game makers' recent performance has remained sluggish, despite the thriving market for Xbox 360, PlayStation 3, and Wii consoles. Last week, I examined Midway's (NYSE: MWY) and THQ's (Nasdaq: THQI) earnings, and came away less than compelled to invest in them.
Activision seems to be living up to the consoles' promise, though. I'll be interested to see whether archrival (and fellow Stock Advisor pick) Electronic Arts (Nasdaq: ERTS) has any surprises up its sleeve with its quarterly results this week. Last quarter, its gameplay wasn't thrilling. In an interesting aside, last week EA said it got a loan commitment for up to $1 billion for its desired takeover of Take-Two Interactive (Nasdaq: TTWO), although it was careful to clarify that no deal was imminent.
Sticking with the video game industry's leaders seems to be a sound investing strategy, and Activision's latest results show that it's really got game as one of the best ideas out there.
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