Activision just crushed earnings estimates on the strength of huge revenues from their Guitar Hero and Call of Duty video game franchises.  It wasn’t just a small beat, but a huge one and after Christmas at that.  Revenues were almost twice expectations at $603 million while earnings were nearly triple the estimates. 

Apparently, fans of Guitar Hero didn’t get the message about the weaker economy.  The stock’s upside has been somewhat capped in recent months by the complex $27.50 per share merger with Vivendi’s gaming operations.  But today’s earnings were so strong that the stock has moved beyond that level, increasing 7% to $29.69 in trading this morning.  While I still have to read through the details of the earnings transcript, my guess is that investors are beginning to value ATVI as though the deal has been completed or at least on the strength of the much better than expected stand alone business in the event of deal failure.

Activision and Guitar Hero are a perfect example of what we’ve been preaching in a slow growth economy.  A slow growth economy doesn’t mean that consumers won’t buy things, it just means that they will be pickier about where they find value.  Innovation will be the hallmark to successful investing in a slow or no growth environment.   And that innovation can and will be rewarded, even if it comes from seemingly shallow endeavors involving cartoon rock stars and their plastic guitars. 

As an avid fan of Guitar Hero, I know from first hand experience that this franchise property expands the appeal of video games from teen age boys and their middle aged dads to sisters and wives as well.   Guitar Hero is huge and if it were a Disney property (maybe it will be someday), it would be right up there with Mickey Mouse and everything Pixar has ever done.

                                                                $65 for a tank of gas?  Necessary.
                                                                $65 for Endless Guitar Hero?  Priceless.

On Monday, we will be guests on CNBC’s Squawk on the Street Show at 9:35am.  If you can, tune in to hear what we have to say about The High Flyers, Washed Outs and Have Beens in the current stock market environment.

But until then, Rock On.