Following yesterday's fiscal report, which revealed doubled profits and record revenues for Activision, Wedbush Morgan Securities analyst Michael Pachter has weighed in on the publisher's performance. Overall, Pachter remains very confident in Activision. He is increasing his FY:08 revenue estimate to $1.8 billion (matching Activision's guidance) and for FY:09 he's forecasting revenues of $2 billion.

"While some may question the company's ability to grow revenues next year, we believe that it is highly likely to substantially exceed expectations this year, and to grow revenues slightly next year," he explained. Pachter is maintaining a "Strong Buy" rating on Activision's stock and is increasing the price target from $23 to $24.50.

"We think it is remarkable that Activision was able to report record revenues for FY:07, given its relatively light lineup," he commented. "Compared to FY:05 (when the company released Spider-Man 2 and Shrek 2), Activision grew its revenues by 7.6%, while the U.S. and European video game industry sales for the period grew by only 2.9%. Activision's publishing revenues for the period were up 4.3%, still outperforming the industry average, and reflecting the company's ability to grow brands like Tony Hawk and Call of Duty, and to seek out acquisition opportunities like Guitar Hero."

That said, according to Pachter, "All things are not perfect in Activision's world." He questions what effect lukewarm reviews for Spider-Man 3 will have on sales, and he also thinks that an Iraq setting for Call of Duty 4 could be a bad move for the publisher.

"The company received uneven reviews on its Spider-Man game, and we believe that sales will be somewhat tempered as a result," he said. "We understand that Call of Duty 4�Modern Warfare is set in Iraq in the present, and we believe that if true, there is some potential for sales to suffer as a result of widespread dissatisfaction with the U.S. war effort in that country. Of course, prior to release, it may be possible to change the venue for the game (we prefer the fictional country of Kreplachistan), and we are confident that Activision will consider carefully how to best position the product in the marketplace this fall."

Of course, Activision's real battle later this year could come in the music genre. Everyone's eagerly awaiting both Guitar Hero 3 and EA's Rock Band, and it could be a tough fight. "There is some question about whether the fall release of the competitive Rock Band product will cannibalize sales of Activision's Guitar Hero," he said. "We do not yet have sufficient details about Rock Band to know whether the game will allow guitar-only game play, or will require consumers to purchase several instruments for a high price. However, notwithstanding Activision management's statements to the contrary, we think that a guitar-only version of Rock Band with music by the original artists and created by the original Guitar Hero team [Harmonix] would compete quite favorably with Activision's game. We think that Guitar Hero will be a significant driver of revenues in FY:08 (we have conservatively modeled $400 million this year), but think that new entrants will impact future growth of the band."