Activision Blizzard Inc. (ATVI) recently released Call of Duty Modern Warfare 3 Content Collection #2, the new downloadable content (“DLC”) pack for Xbox LIVE gamers. The content pack will feature new missions behind enemy lines, armed with new weapons in new locations. Moreover, the content pack also lets players drive the ‘Abrams-class tank’, adding to the versatility of the DLC. Activision had earlier released Call of Duty Modern Warfare 3 Content Collection #1 in March 2012.
Looking back, Activision’s content pack phenomenon started in February 2011, when it released the first content pack – First Strike for the Call of Duty fans. Ever since the success of First Strike, the company released subsequent content packs (Escalation, Annihilation and Rezurrection) for Call of Duty. All these releases positively contributed to the company’s top line and the recent release is expected to do the same for the forthcoming quarters.
Electronic Entertainment Design and Research (“EEDAR”), a video game market research firm, estimates that given the increasing popularity among the Xbox 360 and Play Station 3 console owners, DLCs will generate $1.0 billion in sales in 2012. Activision, with its famous franchises and timely content pack releases, is expected to grab a chunk of the revenue from this segment.
Despite these factors, Activision reported a 27% drop in revenues from the Digital online channel in the recently concluded quarter, which among other items also includes downloadable content revenues. Alongside other factors like a low subscriber base for World of Warcraft, the segment was also negatively impacted by lesser number of DLC releases.
However, Activision is focused on building a number of franchises that will drive its top and bottom lines in 2012 and beyond. The company’s initiatives to strengthen its Call of Duty and Skylanders portfolio through the launch of new versions and content packs would benefit the company in the long run. Additionally, Activision’s foray into the mobile gaming market is expected to be a long-term positive.
However, the softness in the video game industry and Activision’s limited presence in the social gaming market coupled with significant competition from Electronic Arts Inc. (EA) and Take-Two Interactive Software Inc. (TTWO) keep us Neutral on the stock over the long term.
Currently, Activision Blizzard has a Zacks #3 Rank, which implies a ‘Hold’ rating in the short term.
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