Activision Blizzard (ATVI) Sets A High Score Following Microsoft’s (MSFT) Planned $68.7 Bln Purchase

3:18 pm Tuesday, January 18th, 2022

Activision Blizzard (NASDAQ:ATVI) is setting a high score today after tech Goliath Microsoft (MSFT -1%) announced plans to purchase the video game publisher for $95.00 per share, valuing the company at $68.7 bln. Using last Friday’s closing price, MSFT is paying a roughly 45% premium to acquire multiple gaming franchises from ATVI, including Call of Duty, World of Warcraft, and Candy Crush. With estimated FY21 revs of $8.7 bln, ATVI is one of the largest US-based video game publishers by revenue, outperforming Electronic Arts (EA) and Take-Two (TTWO). The deal translates to MSFT paying about 7.9x ATVI’s FY21 revenue.

MSFT, in addition to gaining ATVI’s portfolio of popular releases, is also acquiring 390 mln global monthly active ATVI users. This total encompasses users across all consoles, PC, and mobile, meaning there will be some overlap, but the metric is still significant. Some of ATVI’s future titles could become exclusives for the Xbox console and PC, which could up MSFT’s Xbox Live subscription numbers in the process. As of 2Q21 (Dec), the last time MSFT disclosed this statistic, it boasted 100 mln Xbox Live monthly active users (MAUs), which, priced at around $60 per year in the US, is a decent revenue driver for the company.

Video games have become increasingly popular, especially through the pandemic. For example, ATVI’s MAUs sat at 316 mln in 3Q19 but jumped 23% yr/yr to 390 mln a year later. Although MAUs were flat yr/yr in ATVI’s latest quarter, the company retained its pandemic-related addition in new users, demonstrating this trend’s resiliency.

Cloud gaming has also been on the rise. MSFT’s Game Pass has added nearly 40% more users since 2Q21, going from 18 mln to over 25 mln as of today. NVIDIA (NVDA) has seen an even greater explosion in its cloud gaming service, GeForce Now, which nearly tripled yr/yr in Q3 (Oct) to 14 mln users.

Lastly, the metaverse is becoming a heightened focus of many tech companies, especially game developers and publishers, such as Unity (U) and Roblox (RBLX). MSFT stated in late November that it is investing in the metaverse to cement its leadership position in what it believes to be a third phase of the internet. On the call today, MSFT also commented that it is looking to support a robust ecosystem of metaverse content and applications. By bringing on additional titles, MSFT has become an even bigger metaverse play.

The deal is not without its share of risk, however. ATVI has dealt with internal strife over the past year; certain higher-ups stepped down as the controversy was made public. Coinciding with these internal struggles, ATVI recently delayed two of its major titles. As a result, 2021 was not a great year for the stock, which recorded a drop of over 30%. That performance did allow MSFT to strike this deal at a bit of a low point for ATVI.

Bottom line, although MSFT has made numerous purchases over the years to strengthen its gaming profile, such as its $2.5 bln deal for Minecraft in 2014 and its $7.5 bln purchase of Bethesda earlier this year, this $68.7 bln purchase is by the company’s most significant. Given the hefty breakup fee of $3 bln, the deal seems likely to go through and, in the process, to turn MSFT into one of the world’s largest gaming companies by revenue.