Activision Sees a Strong Holiday, Boosts Full Year Outlook

Activision Blizzard Inc. (ATVI) is feeling rather merry as it approaches this holiday season.

The Santa Monica, Calif., company on Wednesday raised its full-year guidance by more than 11%, saying strong sales of its dungeon adventure game, "Diablo III," and a strong start for the second installment of its toy-meet-videogame series, "Skylanders: Giants," are powering better-than-expected results. The company's upbeat outlook followed a strong third-quarter showing.

Bobby Kotick, Activision's chief executive, said the company was benefiting from the quality of its games. He added that Activision's upcoming war-simulation shooter, "Call of Duty: Black Ops II," will likely continue that trend, notching one of the strongest launches of any entertainment franchise.

"I think the product we're releasing this year is a very good game and likely to break records for the franchise," he said in an interview.

For the year, the company said it expected earnings of $1.10 per share, excluding items such as deferred revenues and stock-based compensation, on sales of more than $4.8 billion. Earlier, it had expected earnings of 99 cents per share on $4.6 billion in sales.

Activision's shares, which have fallen nearly 10% so far this year, rose 2.9% after hours to $11.45.

For the third quarter, Activision reported net income of $226 million based on $841 million in sales. Excluding items, the company said it earned 15 cents per share, more than twice its prior outlook, and $751 million in sales. Analysts on average had been expecting 8 cents per share on nearly $710 million in sales, according to Thomson Reuters.

Activision's results underscore a bifurcation hitting the technology industry. While companies like Activision have been able to post strong earnings on core franchises like "Call of Duty" and the multiplayer online game, "World of Warcraft," others such as THQ Inc. (THQI) have struggled to remain relevant in the marketplace.

THQ, which makes the popular "Saints Row" action game franchise, recently disclosed it hired a bank to evaluate strategic financing options amid a cash crunch that threatens the company's future. Electronic Arts Inc. (EA) as well signaled muted expectations for the holiday quarter following poor reviews of its recently released war simulation shooting game, "Medal of Honor: Warfighter."

Mr. Kotick said one ingredient of his company's success has been its focus on building strong franchises over time, such as "Call of Duty," which is in its ninth installment. He also said he is mindful of maintaining those franchises, pushing Activision's teams to innovate for titles such as "Skylanders," which he said needs to avoid becoming a fad.

"We're very mindful of the time it takes and the innovation that's required," he said. "To us, the most important thing is making great games."

The company has had its challenges. "World of Warcraft," whose subscription service has brought consistency to Activision's quarterly financial results, lost more than a million subscribers in the second quarter, notching just 9.1 million players down from 12 million at its peak two years ago.

Activision attributed the dip to customers waiting for a new addition to the game, "Mists of Pandaria," as well as enthusiasm for the new Diablo game, which was released in May. The new addition to World of Warcraft appeared to help boost subscriptions, Activision noted, bringing its count above 10 million once again.

For the fourth quarter, Activision said it expects earnings of 70 cents per share, excluding items, on $2.4 billion in sales. Analysts had been expecting 67 cents per share on revenue of more than $2.3 billion.

Write to Ian Sherr at ian.sherr@dowjones.com

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