Something unusual happened last week. Shares of Activision Blizzard, Inc. (NASDAQ:ATVI) actually rose after the company beat the Street’s forecast on revenue and profits.
The stock rallied by more than 11% on the news that fourth-quarter earnings were $0.78 a share, or about a nickel better than analysts were expecting. Adjusted revenue was also surprisingly high, coming in at $2.60 billion.
The jump in share price might have made long-term Activision shareholders the most surprised group out there. Activision was just being consistent, after all. Before last week’s release, the company had trounced earnings expectations in each of the past three quarters: by 88%, 67%, and 50% more than Wall Street estimates. And yet the market responded with a yawn. Most recently, on Nov. 8, investors reacted to the company’s third-quarter report, which included nearly twice the expected profits and a boost to Activision’s full-year outlook. Shares closed 4% lower on the day.
So what was different this time? I don’t claim to know why the market does what it does on any given day. But I did see some good reasons for investors to cheer the results.
The hits keep on coming
First, Activision has a genuine hit on its hands in the Skylanders franchise. And hits are critical in an industry that’s seeing overall sales decline but increasing sales results for the top gaming titles. More and more, results are being driven by just a few blockbuster franchises.
Skylanders is off to a quick start in becoming one of those rainmakers. Sales already passed $1 billion, just 15 months after the game’s introduction. Activision’s results show the power of attaching a successful retail component to digital gaming. To date, over 100 million Skylanders toys have been sold globally.
That success has caught the eye of competitors. The Walt Disney Company (NYSE:DIS) plans to enter the category this summer with a new game called Infinity. The game promises to pair console gaming with characters from Disney’s deep intellectual property catalog, and from more modern Pixar creations. Activision’s challenge is to stay ahead of the pack as competition heats up. That’s why it’s moving the target with a new innovation, which allows for gamers to interchange parts on their toy characters, injecting loads of new variety into gameplay.
Of course, Activision’s results were also driven by its more mature franchises. Diablo III was a big success, breaking PC sales records by booking over 12 million copies sold. And the Call of Duty series continued its four-year march of higher total monthly active users.