Activision's New DLC Coming in July

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Activision Blizzard Inc. (ATVI) is set to release a new downloadable content (:DLC) pack for Call of Duty: Black Ops II Vengeance on Jul 2. The pack will be exclusively available to Microsoft’s (MSFT) Xbox Live users.

Vengeance is the third of the four DLC packs for Call of Duty: Black Ops II, scheduled to release in 2013. Developed by Activision’s Treyarch game studio, Vengeance adds four new multiplayer maps namely “Cove”, “Detour”, “Rush” and “Uplink”. Also loaded with the DLC is another new zombie adventure called “Buried”.

We believe that the new content pack will boost Activision’s customer base in 2013. Call of Duty: Black Ops II has already become a blockbuster, crossing the coveted $1 billion sales mark within 15 days of its release, beating Modern Warfare 3’s record by a day, as per the data available from Chart-Track and the retail customer sell-through information.

It is noteworthy that Activision’s last DLC, Call of Duty: Black Ops II Uprising, which was released on Apr 2013, has garnered a metascore of 76, as per Metacritic.

We believe that Activision will continue to release DLCs and expansion packs for its major franchises, going forward. Since the DLCs and expansion packs offer new content, they help aging gaming franchises such as Call of Duty to remain fresh for a long time.

Moreover, the new content improves the competitive prowess of a game such as Call of Duty, which faces significant competition from Electronic Arts’ (EA) Battlefield franchise.

Another major benefit of these expansion packs are their cost effectiveness. The content packs are mostly delivered online, which costs less than the traditional physical format, as they require minimum packaging cost. This low-cost feature is expected to attract more customers, which will drive Activision’s profitability, going forward.

However, continued softness in the video game industry, limited presence in the mobile gaming segment, higher adoption of free-to-play games and significant competition from EA and Take-Two Interactive Software (TTWO) are the major headwinds, going forward. Moreover, continued investments in new products are expected to hurt margins in the near term.

Currently, Activision has a Zacks Rank #3 (Hold).

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