- Associated Press - Monday, May 9, 2011

NEW YORK (AP) - Activision Blizzard Inc. said Monday that its first-quarter net income and revenue grew, helped by strong demand for digital offerings such as downloadable content for the popular “Call of Duty” games.

The video game publisher raised its guidance for the full year, but its outlook for the current quarter was short of analysts’ expectations. Activision has a history of providing conservative guidance. CEO Bobby Kotick said he feels good about the company’s business prospects.

Net income for the first three months of the year was $503 million, or 42 cents per share. That’s up 32 percent from $381 million, or 30 cents per share, a year ago.

Activision’s revenue grew 11 percent to $1.45 billion from $1.31 billion. Besides the latest “Call of Duty” and related digital content, the online game “World of Warcraft” did well.

On an adjusted basis, the company earned $156 million, or 13 cents per share, surpassing the 8 cents that analysts polled by FactSet were expecting. Adjusted revenue was $755 million, well above analysts’ expectations of $665 million. The results were also ahead of the forecast the company gave in February.

Activision’s adjusted results exclude special items and account for the effects of deferring revenue and the related cost of sales for games with online components. Like other video game publishers, Activision spreads these out on its books over time while the game is played rather than all at once.

For the current quarter, the company expects earnings of 19 cents per share on revenue of $985 million.

It is forecasting adjusted earnings of 4 cents per share on revenue of $575 million. On this basis, analysts are expecting higher earnings of 8 cents per share on revenue of $684 million.

The company raised its guidance for the full year. It now expects adjusted earnings of 73 cents per share, up from 70 cents. And it is forecasting revenue of $3.95 billion, up from its earlier guidance of $3.9 billion.

Analysts were expecting earnings of 72 cents per share on revenue of $4 billion.

Activision, which killed off its iconic “Guitar Hero” franchise earlier this year, said it will spend the majority of its resources on developing games that help its long-term growth. A big part of this is going beyond game discs, which have lower profit margins than so-called digital offerings because they have to be manufactured and transported. About 30 percent, or $428 million, of its net revenue came from digital channels rather than traditional retailers in the latest quarter. Last year, it was $330 million, or 25 percent of the total. On an adjusted basis, the split between digital and retail was 50-50.

“We continue to shift our business towards digital delivery of content and establishing direct ongoing relationships with our audiences,” Kotick said during a conference call with analysts. “While this quarter 50 percent of our revenues were digital, we are still scratching the surface.”

Besides downloads of “Call of Duty” content, this also includes the monthly subscription fees gamers pay for “World of Warcraft.”

Not that the company is abandoning discs. This fall, it is planning to launch “Skylander’s Spyro’s Adventure” aimed at kids.

French media conglomerate Vivendi SA owns a majority stake in Activision, which is based in Santa Monica, Calif.

Activision’s stock increased 7 cents to $11.60 in after-hours trading following the release of results. The stock had closed up 9 cents at $11.53.

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