Updated from 4:38 p.m. EST

Activision

(ATVI) - Get Report

gave investors a two-part gift on Monday: holiday results that crushed analysts' expectations and better-than-expected guidance for its coming fiscal year.

But shareholders turned up their noses at the news, selling off the company's shares in recent after-hours trading by 57 cents, or 2.4%, to $23.49. And within the company's standout results were several causes of possible disgruntlement: expenses that grew faster than sales, another delay of the company's

Doom 3

title for the Xbox, and the forecast of potentially disappointing fourth-quarter results.

In an interview with

TheStreet.com

, company CEO Robert Kottick said he was pleased with Activision's results in the quarter. Although the company's expenses outpaced sales, much of that came from money the company spent on marketing games such as the latest versions of its

Call of Duty

and

Tony Hawk

franchises. Activision may have "overinvested" on those titles in the holiday period, but that spending should pay off longer term, he said.

"Those investments were really valuable to build equity in those franchises," he said.

After the close of regular trading, the video-game software publisher said it earned $97.26 million, or 63 cents a share, in its fiscal third quarter. That was up from the same period a year earlier, when the company earned $76.98 million, or 53 cents a share.

The improved earnings came as revenue jumped 34%, year over year, to $680.09 million.

Analysts were predicting that the company would earn 56 cents a share on sales of $617.04 million, according to Thomson First Call. In December, Activision

boosted its earnings and revenue guidance, saying that it expected per-share earnings of 55 cents on $615 million in sales.

Looking forward, the company revised its fourth-quarter guidance. Activision now expects to earn a penny a share in the current quarter on $150 million in sales. Previously, it had predicted a per-share profit of 1 penny on $128 million in sales.

While Activision's revenue guidance is now above analysts' forecasts, the earnings outlook is still below the Street's. Wall Street was predicting a per-share profit of 2 cents on $141.18 million in sales in the company's fiscal fourth quarter.

In giving its fourth-quarter outlook, the company noted that

id Software

has delayed the Xbox version of

Doom 3

to the first quarter of fiscal 2006. This marks the second delay for the title, which Activision distributes for id. Last quarter, Activision said it expected to ship

Doom 3

for Xbox in its fourth quarter, after initially projecting a third-quarter launch.

Privately-held id sets the release date for its Doom franchise, not Activision, noted Kottick. It's likely that id wanted to spend more time "polishing" the game, he said.

Despite the disappointing outlook for near-term earnings, the company did have a more positive outlook for fiscal 2006. In its coming year, Activision expects to earn 91 cents a share, excluding any stock option expenses, on $1.43 billion in sales. Accounting regulators have mandated that all public companies begin including options expenses in their income statements beginning with the quarter after June this year.

Sell-side analysts have predicted that the company would earn 85 cents a share on $1.3 billion in sales next year.

But even there, Activision warned investors of uneven results. The company expects to post less-favorable results in its second quarter of next year than it did in the second quarter of this year, while predicting much better results in next year's third quarter than its just-completed period.

Decreased competition and an increase in the number of its own releases should fuel next year's expected improved results, company executives said on a conference call.

Some analysts had worried that titles from publishers such as Activision might be lost in the shuffle in the just-completed quarter due to the expected strong sales of

Microsoft's

(MSFT) - Get Report

Halo 2

and

Take-Two Interactive's

(TTWO) - Get Report

Grand Theft Auto: San Andreas

. But the company had a number of hits of its own in the quarter, including

Call of Duty: Finest Hour

,

Rome: Total War

and

Tony Hawk Underground 2

.

Activision saw strong results both in its U.S. and international operations. Sales in the United States jumped 37% from the holiday quarter a year earlier to $344.34 million, while international revenue increased 31% to $335.75 million.

But the company's international results were bolstered by the decline of the U.S. dollar vs. other currencies. That decline, which increases the nominal dollar value of goods sold in foreign currencies, added $27 million to Activision's top line, Kottick said. Without that boost, the company's international revenue would have grown by about 20%, and its total revenue by about 28%.

In terms of game systems, the best-performing area for Activision was its titles for handhelds. Activision's handheld publishing revenue jumped 373% year over year to $62.24 million in the quarter. In contrast, console publishing revenue increased 25% and PC publishing revenues just 6%.

Despite the company's revenue windfall in the quarter, only a limited amount trickled down to the bottom line. That's because the company's cost increases outpaced its revenue gains. Royalty and amortization expenses, for instance, increased 146% in the quarter from the holiday period a year earlier to $58.2 million, while licensing costs jumped 139% to $22.6 million.

The company also bumped up its sales and market expenses. Such costs rose 80% year over year to $105.25 million.

The idea behind the marketing spending was that the better Activision's franchise titles performed in the holiday quarter, the better their long-term prospects would be, Kottick said. Over time -- meaning the next five years or so -- the company's sales and marketing expenses should come down relative to revenue, he said.

Overall, Activision's gross profit margin fell 26 basis points in the quarter to 53.46% of revenue. Meanwhile, the company's operating margin dropped 2.8 percentage points to 20.2% of sales.

Activision shares closed the regular session up 27 cents, or 1.1%, to $24.06.