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October 22, 1998: 3:28 p.m. ET

THQ, Activision earnings boost hope for profitable holiday season
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NEW YORK (CNNfn) - Computer gaming companies are rolling out their holiday product lines with an added dose of enthusiasm this fall as industry earnings have so far been at or above target.
     THQ Inc. reported third quarter net income of $2.43 million, or 21 cents per diluted share, a 70 percent increase over $1.43 million, or 13 cents per share, a year ago. First Call analysts had predicted earnings of 17 cents per share.
     Third-quarter revenues hit a record, vaulting 59 percent to $26 million from $16.4 million a year ago.
     The company credited strong sales in Nintendo 64 software for the increase, specifically citing the re-release of the wrestling game "WCW vs. NWO: World Tour." N64 software sales made up 43 percent of the company's revenue in the third quarter. ("World Tour," originally released in November 1997, was THQ's first N64 game.)
     Net income for the first nine months of the year jumped to $11.8 million, or $1.03 per diluted share, up from $3.1 million, or 31 cents per share a year ago. The 276 percent increase, however, did not include a one-time charge of $7.23 million related to THQ's acquisition of GameFX Inc. on May 1, 1998.
     Investors were happy with the results, sending the company's stock (THQI) up 1 point to 17-3/4 in early afternoon trading Thursday.
     Meanwhile, Activision announced a net loss of $2.23 million, or 10 cents per diluted share, compared with net income of $1.84 million, or 8 cents per share, a year ago. The numbers were in line with analyst expectations.
     Revenues for the company's second fiscal quarter came in at $66.2 million, compared to $53 million a year ago. Net loss for the six-month period ending Sept. 30 was $6 million, or 28 cents per share, compared with a loss of $3.58 million, or 17 cent per share, in 1997.
     The chief reason for the loss was Activision's modest slate of new titles last quarter. Also, Activision has focused recently on signing development deals with other gaming companies. Amortization costs, attached to those deals, affected this quarter's earnings, contributing an operating loss of $2.78 million.
     "Over the past six months, we completed a number of strategic initiatives which we believe will greatly benefit the company in fiscal 2000 and beyond," said Robert A. Kotick, chairman and CEO of Activision. "These include a 10-year alliance with Viacom Consumer Products to develop and publish games based on the Star Trek franchise, as well as our Disney, Marvel and LucasArts transactions."
     Both THQ and Activision expressed optimism for the coming holiday season. THQ's expected release of "Rugrats: Search for Reptar," a PlayStation title tied to the childrens television program, and "WCW vs. NWO: Revenge" for the N64 are both expected to be big sellers.
     Waiting in the wings at Activision is "Civilization II: Call to Power," which company executives predicted, in a conference call to analysts, would be the company's most successful PC product in fiscal 1999. Other anticipated titles include "Interstate 82," "Sin" and the updated arcade classic "Asteroids."
     Activision's Star Trek license will last for 10 years. Companies that currently hold licenses will see those expire over the next two to three years, Kotick said in the conference call. That means that none of the current games on the market or in development will have rights to make sequels.
     In addition, the company cleared up Internet rumors about the upcoming Quake III game. While some publications have reported that the eagerly anticipated first person shooter will be a multi-player only game, Kotick said "there will be a significant single player experience."
     Activision's stock {ATVI] was ¼ point higher in mid-day trading Thursday at 10-7/16.
     Yesterday, Electronic Arts (ERTS), a leading force in the computer gaming industry, reporting second quarter operating profit of $10.7 million, or 17 cents per diluted share, compared to $7.1 million, Wall Street expected the company to earn 16 cents a share in the quarter.
     EA's stock was off 2-5/16 to 39-7/8 Thursday afternoon.Back to top


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