Following the positive news that Activision is raising its third quarter and full year outlook, Wedbush Morgan Securities analyst Michael Pachter has commented on the publisher's strong business.

In particular, he thinks that the Guitar Hero franchise will generate around $550 million for Activision this fiscal year, with six million bundles sold and another 1.5 million units of disc-only sales. Next year, however, Pachter is forecasting a decline to 6.3 million units for Guitar Hero as the franchise faces increased competition from MTV's Rock Band.

"Because we expect to see increased competition from a Rock Band guitar-only bundle next year, we are reluctant to model significant growth from Activision's Guitar Hero franchise," he said, adding, "However, expansion into Japan could easily account for 1 million units of incremental bundle sales, and expansion of the category a la Rock Band could well drive revenues above this year's level."

For Activision overall, Pachter noted that there is some doubt from investors concerning whether the publisher can grow revenues again in fiscal 2009, in part because of tough comparisons with Spider-Man 3, Shrek the Third, Transformers and Guitar Hero. That said, Pachter remains optimistic.

"...we expect overall industry growth of approximately 17% in FY:09, and believe that, excluding these franchises and distribution, Activision's core revenues (around $800 million) can grow by around 20%. We expect sequels to Spider-Man and Shrek to generate another $80 million or so, and expect the James Bond game to generate another $100 – 150 million. Distribution should account for another $400 million, bringing overall revenues (excluding Guitar Hero and new franchises) to around $1.540 – 1.590 billion. We expect the three Dreamworks games, Madagascar 2, Kung Fu Panda and Monsters vs. Aliens to generate at least $100 million more than this year's Bee Movie game, and believe that the two new superhero games (titles unannounced) could generate another $100 – 150 million. Thus, without Guitar Hero, Activision should be in a position to deliver $1.740 – 1.840 billion in revenue," he explained.