Activision turns Q2 profit

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SAN FRANCISCO -- Activision Inc, the second-biggest U.S. video game publisher, posted a small quarterly net profit Monday compared with a year-earlier loss, as revenue jumped on sales of titles like "Transformers" and "Guitar Hero."

Activision also forecast third-quarter profit and revenue above the average Wall Street estimate, but analysts said its full-year forecast was conservative given the recent strength, and its shares fell 2.6%.

Net profit was $698,000, or nil cents per share, for its fiscal second quarter ended Sept. 30, compared with a loss of $24.3 million, or 9 cents a share, a year earlier. Revenue rose 69% to $317.7 million.

Excluding the costs of stock-based compensation, Activision posted a profit of 2 cents per share. That beat the average Wall Street target of a loss of 1 cent per share, according to Reuters Estimates.

Activision said the launch last week of its latest "Guitar Hero" game would help it rack up its first-ever billion-dollar quarter in the last three months of the year. First-week sales of "Guitar Hero 3" were $100 million, the company said.

Activision estimated revenue in the third quarter would be $1.05 billion, with profit of 55 cents per share, excluding 4 cents in charges for stock-based compensation.

It also said that profit for fiscal 2008 would be 65 cents per share, excluding 10 cents in equity compensation, on revenue of $2.07 billion.

That was roughly in line with what analysts were already expecting, according to Reuters Estimates.

"I think they were being very conservative on the bottom line," said Todd Greenwald, analyst with Nollenberger Capital Partners. "Activision has become very good at underpromising and overdelivering."

"The key thing is that 'Guitar Hero' still has so much more room to run, there is so much low-hanging fruit for them to grow that franchise," Greenwald said.

Shares in Activision fell as much as 2.6% to $22.30 in extended trading. The stock is up nearly 33% so far this year, almost double the rise of larger rival Electronic Arts Inc.

Activision said it was optimistic about its fiscal 2009 as it developed the "Guitar Hero" franchise and rolled out games based on movies such as a new "James Bond" film.

"Fiscal 2009 already looks robust, and market conditions are expected to improve further," Mike Griffith, Activision's head of publishing told a conference call.
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