Microsoft (NASDAQ: MSFT) is buying Activision Blizzard (NASDAQ: ATVI) for $68.7bn. This acquisition is absolutely massive for the video game industry and is the latest in a series of substantial company acquisitions Microsoft has made.
Activision Blizzard is one of the biggest gaming publishers in the US but it’s had a tough year since its CEO Bobby Kotick was accused of cultivating a "breeding ground for harassment and discrimination against women."
On close, Kotick will remain as CEO and report to Phil Spencer, head of Microsoft Gaming.
What do ATVI shareholders think?
ATVI shareholders are responding well to the news Microsoft has agreed to pay $95 a share in cash for the beleaguered business. Shares were up almost 38% in pre-market trading before being halted for news at $65.39. At market open it rose 31% to $85.66.
Microsoft’s stock is down 1.3% and its main competitor Sony is down 4%.
This marks the largest deal in the gaming sector and will rank Microsoft as the third-largest gaming company by revenue after Sony (NYSE: SONY) and Tencent (HK: 0700).
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown commented:
“Today’s news isn’t just about people liking gaming, we’ve known that for a long time. It says a lot more about how gaming is viewed as an integral part of our future social and digital lives. The mushrooming popularity of this hobby is why Microsoft has delved into its very well-lined pockets and splashed out on the gaming production giant. From an outside perspective, the logic is fairly flawless."
MSFT on an M&A shopping spree
Together with @ATVI_AB, we will usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive, and accessible to all. https://t.co/fF2Ig3gSfx
— Satya Nadella (@satyanadella) January 18, 2022
Satya Nadella was named the CEO of Microsoft, in February 2014. Since then he’s been on a mission to turn around the company image. And his strategy has primarily been through M&A. The company bought Linkedin in 2016 for $26bn and GitHub in 2018 for $7.5bn.
More recently Microsoft acquired Two Hat Security Ltd for an undisclosed amount. This will enhance its capabilities in moderating content in its gaming sector.
Furthermore, Microsoft is already heavily invested in scaling up its digital advertising efforts. In December it acquired the global programmatic advertising marketplace, Xandr from AT&T (NYSE: T).
Earning potential
As of MSFT’s Q3 earnings in October, LinkedIn advertising revenue was up 61% year-over-year. And its gaming segment revenue increased 16% which beat expectations.
With this latest costly ATVI acquisition, Microsoft will be hoping to generate some serious value from the deal. Indeed, this vertical integration strategy should help bolster Microsoft’s gaming division.
Regarding the acquisition Microsoft said:
“This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse,”
Gaming is a hot sector right now, from which Microsoft will be looking to raise its gaming revenue and targeted customer base. It's estimated around three billion people actively play games today and gaming is now the largest and fastest-growing form of entertainment.
Activision Blizzard is the creator of gaming hits like Call of Duty, Candy Crush and World of Warcraft. It also promotes global eSports activities through Major League Gaming. The two companies have a history of collaboration, with Call of Duty's sky-high success thanks in large part to Microsoft’s Xbox Live platform.
Still, Microsoft’s Game Pass could be about to get a lot more attractive with an abundance of popular games. This could make it the Netflix (NASDAQ: NFLX) of gaming and unnerve competitors such as Sony and Nintendo.
In fact, Microsoft's Game Pass recently passed the impressive milestone of over 25 million subscribers. Meanwhile, Activision Blizzard sports nearly 400 million monthly active players in 190 countries and three billion-dollar franchises. Once the deal closes Microsoft will operate 30 internal game development studios, along with additional publishing and esports production capabilities.
Just last week Take-Two Interactive, the ‘Grand Theft Auto’ maker announced its buying Zynga for $12.7bn.
