In a way, the history of Activision
has been like a rough-and-tumble video game. The company
was an early pioneer in gaming, founded in 1979. Activision developed games
for such platforms as Atari (yep, when I was a kid, I spent some time
playing these games). However, by the early 1990s, the company was mired in
bankruptcy. An investment group purchased the company and began a turnaround.
Unfortunately, in the past few years, Activision has been beset with hard
times. In April, the company took a $66 million restructuring charge.
But the game console market is undergoing much change, as the technology is
heading inexorably into the next generation. But as Microsoft, Sony,
Nintendo and Sega prepare to launch their new products, consumers have been
holding off. Also, the development costs for the new consoles are hefty.
But this is temporary. What’s more, with so many new consoles, there will
be high demand for cutting-edge content. And Activision definitely
understands content.
No doubt, the company has been making key changes. For example, there has
been a focus on reducing operating expenses. A big help has been signing
deals with Disney, Paramount and other content developers. This helps to
save on marketing costs.
In terms of the financials, revenues were $84.5 million in the past quarter,
which was up slightly from $84.1 million in the same period last year.
Earnings per share were -$0.21, although this was better than what Wall
Street expected (the estimate was 29 cents). In fact, the company announced
that it would likely see a profit in the next quarter. The company also
completed a $15 million share buyback.
The momentum is likely to continue. After all, Sony will launch its
PlayStation 2 in the fall. And Sony is making a huge push.
Even though Activision is making a comeback, there is still lots of risk.
The gaming business is very similar to Hollywood – that is, driven by big
hits. If Activision hits a dry spell, the stock will fall hard.
But, the company has solid management and technical talent, as well as great
brand products. If the stock stays low for long, it seems likely that
Activision will be buyout bait. And there are a variety of companies that
can easily make the acquisition, such as
Electronic Arts or even
Microsoft .
