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Activision stock slips as World of Warcraft subscriptions decline

November 8, 2011 |  4:45 pm

Call of Duty Modern Warfare 3

Activision Blizzard Inc. on Tuesday raised its financial projections for the entire year, based largely on the strength of a single game: Call of Duty: Modern Warfare 3. But a sharp drop in subscribers for the game publisher’s other marquee title, World of Warcraft, knocked the wind out of the company’s stock.

The Santa Monica company announced Tuesday that subscribers for its World of Warcraft online game had fallen to 10.3 million, down from 11.4 million at the end of March.

“The magnitude of the decline was surprising,” said Michael Pachter, an analyst with Wedbush Securities. “The vast majority of Activision’s revenue and profit comes from World of Warcraft and Call of Duty. And if one of those shows a decline, investor confidence is shaken.”

Activision Blizzard’s shares slipped as much as 48 cents, or 3.5%, to $13.45 shortly after the company updated analysts on the game’s subscribers. Prior to the announcement, it had gained 19 cents to close at $13.93.

“World of Warcraft is the most profitable game of all time,” said Evan Wilson, an analyst with Pacific Crest Securities. “It would be tough to replace that size of profit stream.”

Blizzard Entertainment, the Irvine-based Activision Blizzard studio that produces World of Warcraft, saw revenue decline 38% to $297 million in the third quarter compared with a year earlier, while operating income dropped by more than half to $120 million from $246 million a year ago.

The stumble overshadowed the achievements of Activision Blizzard’s other big franchise, Call of Duty, which has generated several billions of dollars in revenue since the series first came out in 2003. The most successful title was last year’s Call of Duty: Black Ops. It sold more than 25 million copies.

Activision Blizzard said the pre-orders for its newest game, Call of Duty: Modern Warfare 3 — which went on sale Tuesday at 12:01 am — surpassed those of Black Ops.

More than 1.5 million players queued up in front of stores to be among the first to buy the eighth installment in the hard-core shooter franchise. Hours later, Activision Blizzard executives said the company’s revenue and profit would be substantially higher than it had previously forecast, thanks to the game’s strong sales.

“By all metrics … the Call of Duty franchise continues to grow,” Eric Hirshberg, head of the company's publishing division, said in a call with analysts to report the company’s third-quarter financial results.

Overall, Activision Blizzard posted net income of $148 million, or 13 cents a share, on revenue of $754 million for the quarter ended Sept. 30. A year earlier, the firm recorded $51 million in net income, or 4 cents a share, on $745 million in sales.

For the full year ending Dec. 31, Activision bumped up its revenue expectations to $4.33 billion, up from the $4.1 billion it had estimated in August. Company officials now expect earnings to be 76 cents a share, compared with earlier projections of 68 cents.

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— Alex Pham

Photo: A GameStop store manager in Las Vegas during the store's late-night launch event for Call of Duty: Modern Warfare 3. Credit: Ethan Miller / Getty Images.

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