Activision Still the Only Game in Town

• Revenue came in at $857 million, beating Wall Street’s consensus forecast by a whopping 14%
  
  
• Activision earned $0.12 a share, surpassing analysts’ expectations by $0.03 a share.
  
  
• The key product in the quarter was Starcraft II: Sons of Liberty, which sold more than 3 million units in its first month of release.
  
  
• For the fourth quarter, Activision expects earnings of $0.47 a share on revenue of $2.2 billion, slightly missing the consensus outlook calling for $0.50 a share on revenue of $2.31 billion.

If you’ve been paying attention to industry happenings, then you may have seen that Electronic Arts (ERTS) delivered a similar report on Tuesday -- strong September-quarter numbers with a conservative outlook for the holiday season.

However, Activision has been known to lowball guidance in the face of extremely hot products, so investors are giving the company a pass on the conservative guidance -- something that wasn’t awarded to EA after its own report Tuesday.

Essentially, Activision’s mega-properties -- Call of Duty, World of Warcraft, and Starcraft -- are keeping it out of the doghouse that EA’s been tossed in.

Starcraft II is already a hit, as evidenced by its initial sales, and Call of Duty and World of Warcraft will see new editions released in November and December, respectively.

Now Call of Duty: Black Ops, which ships on November 9, is the talk of the town and undoubtedly the most high-profile video-game release of the year.

The question isn’t whether Black Ops will be a hit. It’s whether it will succeed last year’s Call of Duty: Modern Warfare 2 as the biggest entertainment release of all time during launch week.

My thinking is that if EA’s new Medal of Honor shipped 4 million copies to retail in the face of middling reviews and a comparatively weak legacy, then there’s little doubt that Black Ops will be a smash hit.

Not surprising for a Call of Duty game, Black Ops has hit number one on Amazon’s (AMZN) and GameStop’s (GME) websites based on preorders -- always a good sign for initial sales.

And if Black Ops doesn’t live up to Modern Warfare 2’s astounding sales performance, World of Warcraft: Cataclysm, out on December 9, should make up the slack.

Now, let’s shift gears and move to a related topic. On Wednesday, Microsoft (MSFT) came out and said that it expects to sell a whopping 5 million Kinect motion-control gaming systems in the fourth quarter, up from a prior forecast of 3 million units.

That’s simply astounding, and another sign that the industry has become increasingly fractured and unpredictable.

Sales of the original motion-control revolutionary, the Nintendo Wii, have been slowing. At the same time, the Kinect is far from cheap at $150 (or $300+ when bundled with a console), so Microsoft’s forecast is amazing when you think about the state of the economy.

That’s an absolute minimum of $750 million worth of consumers’ money going toward Kin sales that won’t be used for sales of traditional video-game software products.

So bad pun intended, Activision is literally the only game in town when it comes to video-game stocks.

Why? Because Call of Duty and World of Warcraft are two of the industry’s most durable franchises, and thus least likely to be impacted by the dollars suddenly wandering toward Kinect.