| Activision (ATVI) 24.80: After the close, this entertainment software company said its net income for fiscal Q3 was up 91% to $39.1 mln, or $0.66 per diluted share-- $0.08 ahead of the First Call consensus estimate. Net revenues, meanwhile, surged 40% to $371.3 mln. In discussing its record results, ATVI cited a combination of better than expected market conditions, strong worldwide consumer demand, and the successful U.S. launches of Microsoft's Xbox and Nintendo's GameCube video game systems. There aren't many companies overall that can cite such a confluence of bullish factors. In fact, most reports these days are accented by claims of weak market conditions, weak demand, and/or the economic slowdown in the U.S., as they try to explain lackluster results. ATVI, and related companies like ERTS and THQI, however, are operating in a different world than most companies as their industry is in the midst of the strongest growth period in its history thanks to the launch of the next generation of gaming consoles that was led by Sony's introduction of PlayStation 2 in late-2000. Ever since, the industry has been gaining momentum as a greater installed base of gaming consoles has translated into increasing sales of related software. With Xbox and GameCube having just hit the North American market, and PS2 still going strong, ATVI has reason to believe that momentum will continue. Accordingly, it has raised its sales and earnings guidance for FY02 and FY03 for the second time in as many months. Again, few companies can boast of doing the same, but therein lies the appeal of ATVI. Right now, a number of stocks are being bid up on the expectation that earnings estimates will be increased as the economy rebounds. Hence, there is a willingness to dismiss some seemingly excessive valuations as it can be argued that it is just a matter of time until the "E" in their P/E multiple catches up with the "P." That bet can backfire at times, though, when economic data, or a disappointing earnings report, undermines those assumptions. With a company like ATVI, fewer assumptions need to be made. Hence, the expanding multiple is easier to justify because the earnings visibility is there, industry conditions are expected to remain favorable for the foreseeable future, and earnings estimates are indeed being increased.-- Patrick J. O'Hare, Briefing.com |
