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Activision, Marvel Extend Ties

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Activision Blizzard Inc. (ATVI - Free Report) and Marvel Entertainment LLC, a subsidiary of The Walt Disney Company (DIS - Free Report) , continue to expand their partnership as another comic book super hero is set to join Activision’s gaming bandwagon.

According to a recent Forbes article, Activision’s High Moon studio is in the process of developing an original game around Marvel comic super hero character Deadpool. The game, earlier unveiled by the company at San-Diego’s Comic-Con in July 2012, is scheduled to release some time in 2013.

Reportedly the game will be powered by Epic Games Unreal Engine 3 technology. The same technology has been used for Activision’s critically acclaimed franchise Transformers, also developed by the High Moon studio.

Deadpool is not new to the video game world. Over the last few years, the character has made a number of supporting appearances in Marvel games such as X-Men Legends 2, Marvel: Ultimate Alliance and Marvel vs. Capcom 3. However, this will be its first appearance as the lead character in a full-fledged video game.

Over the years, Activision has successfully transformed a number of comic characters such as Spider Man and Transformers into video games. Lately, the company has been criticised for the lack of a new franchise. The inclusion of Deadpool and another Marvel comic book series Hit Monkey in its gaming portfolio will boost subscriber base going forward.

Activision has been expanding its gaming portfolio by launching games featuring characters from television series such as The Walking Dead. Most recently, the company released Family Guy: Back to the Multiverse, which is based on the comic animated series Family Guy.

We believe that the addition of these new popular franchises will boost Activision’s top-line growth going forward. Moreover, the expanding gaming portfolio will provide it a significant competitive edge over Electronic Arts (EA - Free Report) and Zynga going forward.

Recently, the company had launched its much anticipated Call of Duty: Black Ops II, which received tremendous response from Call of Duty fans. We believe that Activision’s recent releases such as 007 Legends, Skylanders Giants, Cabela’s Dangerous Hunts 2013, Cabela’s Hunting Expeditions and Transformers Prime will be incrementally beneficial for the company’s holiday season.

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 are the major headwinds going forward.

We maintain an Outperform recommendation on the company over the long term (6-12 months). Currently, Activision has a Zacks #3 Rank, which implies a Hold rating over the short term (3-6 months).

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