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Activision Blizzard Inc. ( ATVI - Snapshot Report ) thrashed analyst estimates when it announced the first week sales of its much-hyped title Diablo III. The company announced that the first week unit sales of the title exceeded 6.3 million. On the contrary, analysts had projected that the title would gross 5 million copies in the first year of its release. Diablo III was released on May 15, 2012.
The better-than-expected sales figures suggest that gamers have been busy defending the “Sanctuary” from the forces of evil. This is supported by the metacritic rating received by the game (89/100), which is in line with Electronic Arts Inc.’s ( EA - Analyst Report ) popular Mass Effect 3. However, in terms of units sold, Diablo III has handsomely surpassed Mass Effect 3 (2.22 million), released in March 2012, according to VGChartz.
The game’s unprecedented success has earned Diablo III the coveted title of ‘the fastest-selling PC game ever’ after its first day sales figure touched 3.5 million units. This estimate was excluding the 1.2 million gamers who had received the game as part of signing up for the World of Warcraft Annual Pass promotion. The game is available through 8000 retailers in countries like the United States, Canada, Australia, Europe, New Zealand, Taiwan, Hong Kong, South Korea, Southeast Asia and Macau, thus making it a global launch.
The game is also digitally available. Apart from English, the game is available in varied languages such as Latin American Spanish, European Spanish, Brazilian Portuguese, French, German, Italian, Polish, Russian, Korean and Traditional Chinese.
In the recently concluded quarter, Activision’s top line took a beating due to a lack of major title releases, lower-than-expected sales of Call of Duty, lesser number of downloadable content (DLC) releases, and low subscriber base for World of Warcraft. However, management expected improved performances from the forthcoming quarters on the back of big game releases such as Diablo III and Battleship. Now, owing to the record sales of Diablo III, we believe that at least the ongoing quarter will report encouraging figures.
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 be beneficial in the long run. Moreover, the company’s initiatives in reviving some of its old franchises, like Diablo, are expected to act as tailwinds. 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 EA and Take-Two Interactive Software Inc. ( TTWO - Snapshot Report ) 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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