Game companies prep for holidays

Activision Blizzard perseveres, THQ dips

Recently merged vidgame giant Activision Blizzard expressed cautious optimism that it can keep performing during the economic slowdown, while smaller competitor THQ announced a major restructuring as its losses exploded.

Activision Blizzard also unveiled a $1 billion share repurchasing program in an effort to revive its beleaguered stock, which has fallen more than 30% since the merger of Activision and Vivendi Games in July despite a continued solid perf by the company. Investors seemed happy with the earnings news, though, as shares rose 10% in after-hours trading.

THQ stock, meanwhile, was down 16% after hours following a 15% drop Tuesday when news of layoffs first leaked.

Activision Blizzard investors were likely most pleased that the company didn’t reduce its guidance or announce any layoffs, as its biggest competitor, Electronic Arts, did last week. Though he acknowledged the economic environment is dismal, CEO Bobby Kotick remained hopeful that several major sequels for the holidays, including “Guitar Hero: World Tour,” “Call of Duty: World at War” and “World of Warcraft: Wrath of the Lich King” will keep his company on track.

“We are reaffirming our full-year outlook, while recognizing our titles still need to perform well, and there is great uncertainty,” exec said on a conference call with analysts, foregoing his typical ebullience.

Publisher reported revenue of $717 million for the quarter ended Sept. 30, down 8% from a year ago on a comparable basis if the July 10 merger of Activision and Vivendi Games to form Activision Blizzard had already taken place. Excluding a number of merger-related costs, operating income was $122 million, up slightly from what would have been $113 million last year.

Perf was better than previously called for in guidance, driven primarily by continued strong sales for earlier version of “Warcraft,” “Guitar Hero” and “Call of Duty.” Activision Blizzard also benefited from selling to other publishers many Vivendi Games titles it chose not to pick up. These include “Ghostbusters” and “The Chronicles of Riddick: Assault on Dark Athena,” which went to Atari, and “50 Cent: Blood on the Sand,” which was picked up by THQ (Daily Variety, Oct. 30). Publisher has also increased its cost savings target related to the merger by $50 million.

For the fiscal year ending March 31, Activision Blizzard is expecting $1.2 billion in operating income and $4.9 billion of net revenue.

THQ, meanwhile, saw its revenue fall 28% and net loss surge to $115.3 million from $7 million last year. One key reason was lower-than-expected sales overseas for its videogame adaptation of the Disney/Pixar toon “Wall-E.” In the current quarter, company is believed to be doing better with its M-rated over-the-top action game “Saints Row 2,” which has already shipped more than 2 million units.

Company also slashed its revenue guidance for the fiscal year ending March 31 from $1.15 billion-$1.175 billion to $875 million-$900 million. It is also projecting a loss, whereas it previously told investors it would generate a profit. Company attributed the changed guidance to the delay of several games into the fiscal year starting April 1, 2009, growth in value of the U.S. dollar and softer sales expectations in the worsening economy, particularly for kids’ games.

As a result of its financial problems, THQ is closing five of its 16 internal development studios and laying off 250 people, or about 17% of its development staff. It is also canceling several titles in early development and plans to reduce product spending by $100 million in the next fiscal year.

“We expect the combination of a much more focused and competitive product line with a more efficient cost structure to put THQ back on the path to growth and profitability in fiscal year 2010,” CEO Brian Farrell said in a statement.

Before earnings were released Wednesday, THQ stock closed flat at $6.55, while Activision Blizzard shares were down 7% at $10.98.

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