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Activision Offers New Nuketown DLC

Zacks Equity Research

Activision Blizzard Inc.’s (ATVI) upcoming game Call of Duty: Black Ops II will let gamers revisit “Nuketown”, a popular multiplayer map that was first introduced in Call of Duty: Black Ops.  “Nuketown” has been the most played multiplayer map in the game’s history.

The new map, named “Nuketown 2025”, comes as a downloadable bonus map for gamers who pre-order Call of Duty: Black Ops II. The game is set to release on November 13, 2012. “Nuketown 2025” will be a depiction of a typical town in the 1960’s with a blend of science fiction. The size of the map is not expected to change and gamers can expect enhanced pulsating action from what they had encountered in the previous version.

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 more than $6 billion in sales (life to date). It is expected that the upcoming game will significantly increase Activision’s cash flow going forward.

However, gamers might be tired with the release of Call of Duty games every year due to the overexposure of the game. This is a key aspect that the company should keep in mind, as its top line shrank 22.2% year-over year in the first quarter of 2012 mainly due to lower-than-expected sales from the Call of Duty franchise as well as declining subscriber base of World of Warcraft and lesser number of downloadable content (“DLC”) releases.

We believe that the new Nuketown DLC reflect Activision’s strategic marketing ploy to boost the sales of the upcoming Call of Duty game.  Moreover, Activision has outlined a solid portfolio of games that are slated to release in 2012. Its initiatives to strengthen its portfolio through the launch of new versions and content packs would be beneficial over the long run. Activision’s foray into the mobile gaming market should also be a long-term positive.

However, 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) are the near-term headwinds. The lack of new titles (not sequels or downloadable contents) and over-dependence on old franchises, particularly on Call of Duty and World of Warcraft, are the other challenges going forward.

We have a Neutral recommendation on Activision in the long term. Currently, Activision has a Zacks #3 Rank, which implies a Hold rating in the short term.

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