30-Oct-02
Activision (ATVI) 19.98 +1.77: Few groups have received as much attention lately as the entertainment software group. For the most part, the undue attention has been a by-product of some disappointing comments on industry trends that were made last week by THQ, Inc. (THQI). Last night, however, Activision (ATVI) provided its own perspective on the industry that quelled some burgeoning concerns about the industry's prospects.
After reporting better than expected fiscal Q2 (Sep) results and raising its sales and EPS guidance for FY03, Activision began its conference call with an acknowledgment that FY04 (beginning in March) is likely to be the company's best year ever. Its optimism was rooted in a number of factors, not the least of which is the company's expectation that the North American hardware installed base will increase from 35 mln units at the end of calendar '02 to at least 55 mln units at the end of calendar '03. Additionally, Activision has 75 products planned for release next year.
Careful to stress that companies have different ways of arriving at industry forecasts, Activision noted it was projecting a combined growth rate of 13-17% in calendar '03 for console, handheld, and PC video game software in North America and Europe, with an assumption that Europe won't grow quite as strong as the U.S. Separately, Activision forecast 17-20% growth for the total console market, including software for both new and old platforms.
Hoping to dispel some concerns raised by THQ about the upcoming holiday season, Activision indicated that, barring any major macroeconmic issues, it expects a strong holiday season. The company did note, however, that retailers are being pretty selective right now, particularly with respect to the GameCube and GameBoy Advance platforms where they appear to be over-inventoried.
Activision held off on updating its FY04 guidance, saying it would do so when it finalizes its operating plan in January. On its last call, it provided preliminary guidance for EPS of $1.35 and revenues of $1.025 bln. In listening to last night's call, one got the sense that those numbers are likely to increase as Activision is known for its conservative planning. That understanding is reflected in the fact that current Multex consensus estimates for FY04 are $1.41 and $1.074 bln, respectively.
Should Activision boost its guidance to match the current consensus EPS estimate, that would translate into yr/yr EPS growth of approximately 9.0%. While that is nothing to sneeze at, it does seem somewhat modest for a company that is in the midst of a great growth period. Be that as it may, Activision is winning accolades today for an outlook that suggests, at the very least, that it should be in a good position to capitalize on the growth prospects that still exist for the entertainment software industry. Whether the market really believes in those prospects is another matter.-- Patrick J. O'Hare, Briefing.com |
