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ATVI's StarCraft II Expansion a Hit

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Heart of the Swarm, the new expansion pack of the StarCraft II franchise set new records as Activision Blizzard (ATVI - Free Report) sold more than 1.1 million units worldwide, including retail and digital sales.

Activision launched the new expansion pack on Mar 12, 2013, through events hosted around the US, France, Australia, South Korea, Singapore, Taiwan, Russia, Brazil, and Mexico. Activision also streamed live the launch events held in Australia, South Korea, France and the US, which were viewed by more than 1.1 million gamers.

Activision also announced that last weekend (Mar 15-17) more than 1.1 million viewers watched the StarCraft II: Heart of the Swarm tournament at the Major League Gaming (MLG) Winter Championship held in Dallas, Texas.

StarCraft has been a hit franchise for Activision over the years. The original version won critical acclaim as one of the top real-time strategy games of all time. StarCraft II: Wings of Liberty was released in Jul, 2010 and sold more than 1.5 million copies within the first 48 hours of its launch, thereby making it the fastest-selling strategy game of all time.

StarCraft II: Heart of the Swarm is a sequel to the critically acclaimed Wings of Liberty and is the second part of the StarCraft II trilogy. StarCraft II centers on the clash between the protoss, terrans, and zerg. The new expansion pack has an attractive storyline that follows the adventures of former zerg Queen of Blade, Sarah Kerrigan and the development of a zerg empire.

The strong initial response makes us believe that that the new expansion pack (which is releasing after a gap of two years) will drive significant top-line growth for Activision, primarily due to pent-up demand. The strong demand will provide a competitive edge against significant competition from Electronic Arts' (EA - Free Report) recently released Mass Effect 3 downloadable contents (DLCs) and Crysis 3.

However, the cannibalizing effect of free-to-play games from EA and Zynga is a headwind going forward. Moreover, Activision’s limited presence in the mobile segment particularly on Google’s Android platform (no other game except Call of Duty Elite) is a major growth impediment in our view.

Additionally, volatile macroeconomic environment, uncertainty related to console transition and tough year-over-year comparisons are the other headwinds. We believe that the continued softness in video game industry retail sales despite increasing investments in new products will continue to hurt Activision’s profitability in the near term.

Currently, Activision Blizzard has a Zacks Rank #4 (Sell).

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