Activision Blizzard Inc. (ATVI) is basking in the glory of its recently launched title Call of Duty: Modern Warfare 3. According to Charttrack and retail customer sell-through information, Activision has already raked in more than $775 million in sales in the first five days of its release. This blizzard performance broke the previous five-day records of $650 million in sales that were set by Call of Duty: Black Ops (in 2010) and $550 million set by Call of Duty: Modern Warfare 2 (in 2009).
Data from Microsoft Corp. (MSFT) showed that multiplayer playing hours for Call of Duty: Modern Warfare through its Xbox 360 touched 7 million on its launch day. This is up 19% from 5.9 million multiplayer playing hours logged for Call of Duty: Black Ops that was launched last year. Moreover, it is the best selling video game through its retail partners like Best Buy Co. Inc. (BBY), GameStop Corp. (GME), Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT).
The Call of Duty franchise has one of the most ardent fan followings and has been one of the most played games in 2010. Now touted as the most valued entertainment property, Call of Duty has already raked in $6 billion in sales (life to date). It is expected that each new game released under this franchise will significantly increase the cash inflow for Activision.
Modern Warfare 3was pitted against Electronic Arts Inc.’s (ERTS) Battlefield 3, but units sold on the first day for the former outnumbered the latter by a sizeable margin. With the holiday season coming up, the legacy of the Call of Duty franchise will surely be reflected in the company’s top-line.(Read the full story at: Activision's MW 3 Sets Record)
Most experts believe that Electronic Arts will sell a total of 10-12 million units of Battlefield 3, while Activision will sell more than 25 million units of Modern Warfare 3.
Another set of analysts believe that the release of Call of Duty games every year might eventually tire the gamers due to the overexposure of the game. Nonetheless, Activision has plans of releasing two new games of the same franchise in 2012.
In the U.S. video games sales retail report for the month of October, NPD reported a marginal increase of 1.0% following a consistent decline over the previous five months. Also, despite macro-economic concerns, domestic economic reports suggest that there is an up tick in consumer spending. This is only to be expected, given that the holiday season is just around the corner. However, whether the strong growth in the next couple of months will be strong enough to offset the devastating summer months (May, June, July and August) remains to be seen. (More on October Video game sales: Video Game Sales Rise in October)
We believe that Activsion Blizzard’s strong product pipe line and expansion into the online digital segment will help to drive the top-line.
However, Activision continues to face tough competition from Electronic Arts Inc. and Take-Two Interactive Software Inc. (TTWO), which will act as a headwind going forward. Moreover, the limited presence of the company in the field of mobile and social gaming will be a constraint going forward.
In the long run, we maintain our ‘Neutral’ rating. We currently have a Zacks #2 Rank for Activision Blizzard Inc., which implies a ‘Buy’ rating in the short term (1-3 months).
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