Activision's Sales Break Records - Analyst Blog

A leading publisher of online, personal computers, console, handheld and mobile games, Activision Blizzard Inc. (ATVI) recently noted that its flagship action game, Call of Duty’s map packs sold more than 20 million units to date as measured during the second quarter of 2010, ended June 30, 2010.
 
In June this year, Activision released the most recent map pack for Call of Duty: Modern Warfare 2 Resurgence Pack for Microsoft Corporation’s (MSFT) Xbox Live online entertainment network. This map pack was also available for Sony Corporation’s (SNE) PlayStation 3 and personal computers based on Microsoft’s Windows operating system (OS) from July 6 and 7 onwards. Contracts with large companies have enabled Activision to reach the 20 million mark for its premier game.
 
Call of Duty has been one of the most successful gaming franchisee for Activision. During the first quarter of 2010 (ended March 31, 2010), Call of Duty: Modern Warfare 2 game held number one position in the U.S. and Europe in the action category, as per the NPD Group (U.S) and Charttrack and Gfk (Europe), respectively. Moreover, the game grabbed premier position in the U.S. and Europe as the leading third party video game.
 
Although Activision faces increased competition from large gaming companies such as Electronic Arts, Sony and Nintendo, among others, its expanded user base, large addressable gaming market and increased game demand will enable Activision to generate higher revenues.
 
Call of Duty: Modern Warfare 2 Stimulus Package (the first map pack to Call of Duty: Modern Warfare 2), launched in May 2010, broke the records of Microsoft’s leading Xbox LIVE as more than one million gamers worldwide downloaded the new digital map pack in the first 24 hours alone.
 
On a separate note, Activision recently confirmed the release date of its new franchisee Call of Duty: Black Ops. The game is scheduled to release on November 9, 2010. The game will be accompanied by a new game developed exclusively by independent game studio n-space for the Nintendo DS family of hand held systems. The company did not provide any pricing details.
 
Call of Duty: Black Ops for the Nintendo DS allows a maximum of six players to play the game online. The game has a new Perks system and a number of different game modes such as two players Co-op mode, arcade mode and challenge mode. The host of new features is sure to attract a lot of gamers. We believe this will further drive unit sales, thereby driving revenue growth.
 
Recommendation
 
We maintain a Neutral recommendation on Activision on a long-term basis (6-12 months) due to its strong product pipeline, scheduled to be released in the second half of 2010. Moreover, formation of new partnership with Bungie studio will also boost Activision’s profitability in the long term.
 
However, weak industry trends remain a concern. Video game sales declined in June 2010. According to a research firm, NPD, retail sales of hardware, software and accessories in the US plunged 6.0% year over year to $1.1 billion. Software sales slashed 15.0% year over year to $531.3 million.
 
Moreover, video game industry is highly competitive. Activision continues to face stiff competition from Electronic Arts Inc. (ERTS), Sony Corporation  and Take-Two Interactive Software Inc. (TTWO).
 
Currently, Activision has a Zacks Rank of #4, which implies short-term rating of Sell.