(ATVI) Activision Blizzard to Release Annihilation

Activision Blizzard Inc. (ATVI), a leading developer, publisher and distributor of interactive entertainment and leisure products, announced a new content pack of Call of Duty: Black Ops that will release on June 28, 2011.

The content pack, known as Annihilation, will be launched first on Microsoft Corp.’s (MSFT) Xbox LIVE gaming system and will feature four new multiplayer levels namely, Hangar 18, Drive-In, Silo and Hazard. Additionally, gamers can encounter a Zombie-like experience through Shangri-La, which is set to challenge Zombie hunters with superior graphics and innovative gameplay.

Call of Duty: Black Ops is the most successful franchise in the Activision camp and continues to attract millions of online gamers globally. To bank upon the success, Activision had already released two content packs previously, First Strike and Escalation, both of which received very encouraging response from gamers. We believe that with the third one, Annihilation, Activision is going to set the bar a notch higher.

Looking back, Activision’s content pack phenomenon started in February 2011 when it released the first content pack known as First Strike, which witnessed unprecedented success, generating a record 1.4 million downloads within 24 hours of its release. This was 21% more than the sales generated by the first content pack of Call of Duty: Modern Warfare 2.

The second content pack, Escalation, was released in May 3, 2011 and was also a huge success.

Very recently, Activision launched its most anticipated game, Transformers: Dark of the Moon. We expect the game to do well as the launch of the game has been timed to perfection as it comes in just ahead of the release of the film with the same name and the same storyline.

All the major publishers are moving towards the digitized version of the games and Activision is no exception. Activision has recognized the digital medium to be a genuine revenue stream that is likely to benefit the company going forward. In the forthcoming quarters, we expect the company to expand in the high-margin digital business segment.

However, Activision continues to face tough competition from Electronic Arts Inc. (ERTS) and Take-Two Interactive Software Inc. (TTWO).

Moreover, Activision does not have a presence on the social gaming platform, where Electronic Arts has seen some gains, which may hurt its competitive position over the long term.

We maintain our Neutral rating over the long term (6-12 months). Currently, we have a Zacks #2 Rank for Activision Blizzard, which implies a Buy rating in the short term (1-3 months).

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