"Guitar Hero" makes Activision into profit hero

SAN FRANCISCO (Reuters) - Activision Inc (ATVI.O) on Thursday posted a higher-than-expected quarterly profit and gave a bullish revenue forecast, citing strong sales of its hit "Call of Duty 4" and "Guitar Hero 3" video games.

Activision, which is awaiting approval of its merger with the games unit of French telecoms and media giant Vivendi (VIV.PA), said a more aggressive roll-out of "Guitar Hero 3" in Europe this year will help sustain growth.

Activision expects revenue in its current, fourth fiscal quarter to be $350 million, about 25 percent higher than the average forecast of Wall Street analysts on Reuters Estimates.

"What's yet to be demonstrated is whether demand for 'Guitar Hero' will be as robust throughout Europe as a whole as it has in the North American market," said Ed Williams, an analyst with BMO Capital Markets.

"Guitar Hero 3," in which players strum guitar-shaped controllers in time with rock songs playing on-screen, was one of the best-selling games last year but had a muted European launch as Activision focused on satisfying U.S. demand.

The company is also banking on games tied to upcoming films such as "Kung Fu Panda" from DreamWorks (DWA.N) and a new James Bond title from Sony Corp (6758.T).

"All those products will be important this year but 'Guitar Hero 3' will probably be the most important," Activision Chief Executive Bobby Kotick told Reuters in an interview.

"We are making progress (in Europe) on the inventory front, on getting local content. We are definitely a year behind in Europe versus what we did in North America."

Activision posted a third-quarter net profit of $272.2 million, or 86 cents per share, compared with $142.8 million, or 46 cents per share, a year earlier. Excluding special items such as stock-based compensation, Activision earned 90 cents per share, beating the average Wall Street target of 81 cents.

Revenue soared 80 percent to $1.48 billion and beat an average forecast of $1.39 billion from Reuters Estimates.

Shares rose 0.9 percent, the equivalent of a shrug from investors now used to Activision's blistering growth. The stock has soared 55 percent over the past year, compared with a fall of 11 percent in both Electronic Arts Inc (ERTS.O) and Take-Two Interactive Software Inc (TTWO.O).

Many investors are in a holding pattern as they wait for the merger to close some time before the end of June, creating a new titan called Activision-Blizzard that will rival EA for the industry's top spot.

"When you get somewhere closer to actual consummation of the deal, people will sit down and decide whether they want to own this," said Kaufman Bros analyst Todd Mitchell.