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Activision Blizzard (ATVI - Snapshot Report) recently announced that it has collaborated with Bungie to develop a new first-person shooter game, Destiny. Destiny is a sci-fi story based game set in the very distant future. The game can be played on different platforms including Microsoft’s (MSFT - Analyst Report) Xbox 360, Sony’s PlayStation 3 and other console systems.

In the recently concluded quarter, Activision had announced that the company would invest in new IPs and join forces with Bungie to develop new games. Destiny is the first game of the collaboration between the two companies. Bungie has been associated with games such as Halo and other titles such as Marathon and Myth.

We believe that the current partnership with Bungie bodes well for the company’s long-term plans as Activision is desperately on the lookout for new titles. Activision has relied on Call of Duty, Skylanders, World of Warcraft and StarCraft franchises as the main source of revenues for the last couple of years. Activision has garnered solid revenues from the release of content packs and new versions of the franchise games. However, Call of Duty, World of Warcraft and StarCraft are all old franchises. Skylanders is a relatively new franchise and has done exceedingly well.

Thus, Activision’s effort to develop a new franchise to diversify its revenue source is a positive factor. However, the company remains cautious regarding fiscal 2013 given the volatile macroeconomic environment, uncertainty related to the console transition and tough year-over-year comparisons. Moreover, the company also provided a tepid outlook.

We also believe that the 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 Electronic Arts (EA - Analyst Report) and Take-Two Interactive Software (TTWO - Snapshot Report) are the major headwinds for Activision going forward. Moreover, continued investments in new products are expected to hurt margins in the near term.

Currently, Activision Blizzard has a Zacks Rank #5 (Strong Sell).

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