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Analysts Bullish On Activision After Positive Results

Following yesterday's news of a strong third quarter for Activision, analysts have raised estimates, thanks to a "robust" slate that includes Spider-Man, Tony Hawk, Guitar Hero
Following yesterday's news of a strong third quarter for Activision, analysts from Lazard Capital Markets and Wedbush Morgan have offered insight into the company's encouraging quarterly performance, while simultaneously raising revenue estimates for the company for the remainder of the fiscal year. As reported yesterday, revenues for Activision's third quarter ended December 31, 2006 were $822.8 million, up from the $816.2 million reported during the same period last year, due primarily to strong performances by four key Activision titles, including Call of Duty 3, Marvel: Ultimate Alliance, Tony Hawk's Project 8, and Guitar Hero II. Adding to this, in his latest research note to investors, Wedbush Morgan's Michael Pachter said, “In particular, we believe that Activision’s co-published/distributed LucasArts’ LEGO Star Wars II in Europe had strong sales again this quarter (though at low margin).” Lazard's Colin Sebastian also added his insight into the factors that contributed to Activison's quarterly results, stating, "We also believe the company’s distribution business was a key contributor to upside in the quarter, along with a favorable currency impact.” However, both analysts were quick to highlight the impact of ongoing internal investigations and the SEC inquiry into stock option practices, with Pachter in particular noting, “At this time, it is still difficult to assess the exact timing of resolution as well as the scope of any corrective actions or restatement.” More details concerning the SEC inquiry are expected to be released as part of Activision's earnings announcement scheduled for February 7. Even so, both Pachter and Sebastian seemed unwavering in their convictions concerning both the short and long term outlook for Activision, with Lazard raising its fiscal 2007 revenue estimates for the company to $1.37 billion, up from $1.21 billion, and fiscal 2008 estimates to $1.68 billion from $1.63 billion. The analyst indicated that the revision was due primarily to “a robust lineup of new titles including key movie-based franchises Spider-Man and Shrek, as well as sequels to core franchises Tony Hawk, Guitar Hero, and Call of Duty, and new licensed titles Transformers and Bee Movie.” Likewise, Pachter also cited revised estimates, raising the firm's expectations for fiscal 2007 from $1.160 billion to $1.379 billion. Wrote Pachter: “We are increasing our revenue estimates to account for the upside in Q3 and raised guidance. We note that our model includes modest revenue from Guitar Hero II (360) in Q4 and we believe that if the game is released earlier than expected it can provide additional upside to our estimates.” Lazard has maintained its 'buy' stock rating for Activision, with a target price of $20. Similarly, Wedbush has maintained its 'strong buy' stock rating for Activision, with a 12-month target price of $18-$23. Shares of Activision opened trading today at $17.71, and as of this writing are trading at $16.89 on the Nasdaq.

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