Activision Holiday Outlook Tops Estimates While Take-Two Forecast Misses

Activision Blizzard Inc. (ATVI), the largest video-game publisher, posted third-quarter profit that beat analysts’ estimates and raised its full-year forecast, citing new titles including “Call of Duty.”

Take-Two Interactive Software Inc. (TTWO), publisher of the “Grand Theft Auto” games, projected third-quarter sales and profit that fell short of analysts’ estimates because of a weaker retail lineup.

Retailers may sell 18 million copies of the $60 “Call of Duty: Modern Warfare 3” by the end of the U.S. holiday season, according to Arvind Bhatia, a Sterne Agee & Leach Inc. analyst in Dallas. The newest installment of Take-Two’s “Grand Theft Auto” won’t be out until 2012. Both companies will benefit from online sales of added content for existing titles.

“You’re really starting to see the business change and move toward the continuous content model,” Chief Executive Officer Bobby Kotick said in an interview. “It’s part of what we like from a business perspective -- the ability to have constant content coming, with revenues that are more consistent.”

Activision’s third-quarter net income almost tripled to $148 million, or 13 cents a share, the Santa Monica, California- based company said yesterday in a statement. Excluding some items, profit of 7 cents exceeded the 2-cent average of 19 analysts’ projections compiled by Bloomberg.

Activision, raising its 2011 earnings forecast for the third time this year, released the first-person shooter game “Call of Duty: Modern Warfare 3” yesterday to strong demand.

‘Call of Duty’ Orders

“The preorders were far in excess of what we’ve seen on our products ever,” Kotick said. “Our biggest competition on ‘Call of Duty’ is ourselves, the games we have out there that people continue to play for hours online.”

The eighth “Call of Duty” may sell as many as 6 million copies in 24 hours, said Bhatia, who recommends buying Activision shares. Electronic Arts Inc. (ERTS)’s latest “Battlefield” shooter game went on sale Oct. 25 and sold an estimated 5 million units worldwide in the first week.

Activision’s third-quarter sales, excluding changes in deferred revenue, fell 27 percent to $627 million from $857 million a year earlier. On that basis, analysts predicted $554.1 million, the average of 18 estimates. Total revenue gained 1.2 percent to $754 million, the company said.

For the year, profit excluding some items will be 85 cents a share, compared with 77 cents predicted by Activision in August and the 79-cent average estimate of 20 analysts.

Online Sales

Activision is trying to boost sales with the simultaneous release of an online subscription called “Call of Duty Elite.” Users who pay $49.99 annually get new downloads, videos, strategy guides and other features.

This quarter, the company began offering “Skylanders: Spyro’s Adventure,” which combines toy purchases with a video game. Orders have exceeded internal estimates, Kotick said, and are expected to grow after Thanksgiving, on Nov. 24.

Take-Two expects its 2012 slate of games to contribute to one of the company’s best years ever, Strauss Zelnick, the company’s chief executive officer, said in an interview.

On Nov. 2, Take-Two released its first teaser video for “Grand Theft Auto V,” the long-anticipated next installment of the hit title from its Rockstar Games studio.

The loss for the quarter ended Sept. 30 totaled 47 cents a share, excluding some items, New York-based Take-Two said yesterday in a statement. Analysts expected a loss of 57 cents, the average of 14 estimates compiled by Bloomberg. Sales fell 56 percent to $107 million. Analysts projected $82.5 million.

Outlook

Sales for the quarter ending Dec. 31 will be $225 million to $275 million, down from $334.3 million a year ago and less than analysts’ projections of $311.9 million, the average of 14 estimates. Profit will be 20 cents to 30 cents a share, excluding items. Analysts project 34 cents.

The company’s upcoming slate and the likelihood it won’t renew a contract with Major League Baseball will lead to a solidly profitable year, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles who has an “outperform” rating on the shares.

Activision rose 1.4 percent to $13.93 yesterday in New York. The shares have gained 12 percent this year. Take-Two rose 0.6 percent to $15.66 and has gained 28 percent this year.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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