Wedbush Morgan analyst Michael Pachter believes that Activision’s reliance on a few brands will ultimately hurt the company, as he believes Black Ops will not perform to the same level that Modern Warfare 2 did.
“The Q2 results were not particularly impressive. Most Q2 releases all underperformed expectations (Blur, Shrek Forever After and Singularity were all weak); Transformers: The War for Cybertron sold in line with our estimates,” said Pachter. “The Q2 results reinforce Activision’s dependence on a handful of franchises, and calls into question whether its future franchises will contribute meaningfully to the bottom line as performance of additional IP seems uncertain at best.”
Though he does state he “expects the company’s performance to improve over the balance of the year,” the company could be in trouble.
“We fear that after so many years of near-flawless execution, Activision has begun to slip a bit, perhaps in the process becoming overly reliant on the parts of the business that are phenomenally successful.”
“We were somewhat troubled by the shift in release date for True Crime. After going four years without a meaningful title slip, Activision slipped two titles last year, Blur and Singularity, for the same reason: the company wanted to give the developers more time to the games,” Pachter stated. “Neither sold well in Q2, and it does not appear that either will have a second wind later in the year. The last version of True Crime was a flop, and it is far from certain that the new version will be successful.”
Though the Call of Duty franchise is a lucrative one, Black Ops is in between a rock and a hard place, says Pachter. “While we believe that these figures are achievable, we think upside is far from assured."
“We have doubts that Black Ops can repeat the success of Modern Warfare 2, as this year’s game faces stiff competition from EA’s Medal of Honor and Bungie’s Halo: Reach. In our view, the three games combined will sell at least 25 – 35% more units than Modern Warfare 2, suggesting total holiday sales of around 25 million; however, it is not clear that Black Ops will capture more than 50% market share, placing upside at risk.”
