Win Over FTC Should Allow Microsoft To Close Acquisition of Activision

Senior Equity Analyst

Neil Macker

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Blizzard

King

Activision

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Activision Blizzard is one of the world's largest third-party video game publishers and owns some of the largest and well-known video game franchises, including Call of Duty and World of Warcraft. We believe the firm is well placed to consolidate its leading position by developing compelling new versions of its existing franchises and by introducing new experiences, such as Overwatch. We expect Activision to continue to benefit from ongoing console demand, the ongoing revitalization of PC gaming, and the growth in the mobile market via King. 

Activision Blizzard’s sale to Microsoft remains pending as a few jurisdictions continue to scrutinize the deal. However, recent developments, including a U.S. court’s blocking of a preliminary injunction by the U.S. Federal Trade Commission and Microsoft’s agreement to halt litigation in the U.K. in order to restructure the deal, point to the deal closing in the near future. 

Activision has capitalized on the shift in the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller indie games on the other side. Activision generally focuses on the higher end of the market, using its capital to fund higher-budget blockbusters and its marketing scale to support its titles across multiple advertising platforms. Activision's primary competition remains other large third-party publishers, such as Take-Two and EA, as well as console manufacturers (and first-party publishers) Sony and Microsoft.

Like its peers, the firm is focused on engaging users beyond the initial game sale via extending the monetization window by expanding the use of multiplayer options and releasing downloadable content. Both methods encourage gamers to hold on to the original game longer than in previous generations and provide an income stream from consumers who purchase the game secondhand. Activision has used DLC and multiplayer to extend the life of multi-billion-dollar franchises such as Call of Duty, and we believe franchises like Hearthstone and Overwatch can also maintain long-term success.

Business Strategy & Outlook

We assign Activision a narrow moat. Activision Blizzard is one of the world's largest third-party video game publishers and the firm behind some of the most compelling and lucrative franchises of all time. Over the last 15 years, the video game industry has undergone a number of changes including two console generation transitions; the rise of digital downloads; widespread adoption of mobile games; and the expansion of the free-to-play, or F2P, business model. Over this same period, Activision (the predecessor company) has transitioned from a console-based video game publisher to the one of the largest publishers on both consoles and the PC via the 2008 merger with Blizzard (then owned by Vivendi). The firm owns six core franchises that have grossed over $1 billion in revenue--World of Warcraft, Call of Duty, Diablo, StarCraft, Overwatch, and Hearthstone.

Its portfolio of widely successful franchises allows the firm to monetize its intellectual property year after year by delivering content via sequels, expansion packs, downloadable content, or DLC, and toys, exemplified by the decade-old World of Warcraft franchise and the annual versions of Call of Duty. These franchises can also spawn games that move the company into new arenas such as F2P (Hearthstone from WoW) and mobile (Call of Duty Mobile). The company's franchises have a dedicated user base, providing Activision with the leverage to push more of its games via direct digital channels thus bypassing retailers, generating higher gross margins and improving returns on invested capital.

We believe that the console and PC video game market will continue to largely fragment into two tiers: AAA games with large budgets and indie games with small budgets. Activision’s size and the depth of its franchise slate allow the firm to place larger bets on new IP than many smaller midsize competitors. This ability to make larger investments marks the publisher as one of a few destinations for studios looking to develop new large-budget AAA games.

Narrow

Economic Moat

Activision Blizzard

King Digital Entertainment is a social games development company. King develops games for the web, for mobile (iOS, Android, Windows Phone), Facebook, and Windows 10. King gained fame after releasing the cross-platform title Candy Crush Saga in 2012, considered the first successful game utilizing the freemium model. King was acquired by Activision Blizzard in February 2016 for $5.9 billion, and operates as its own entity within that company.

King Digital Entertainment

Activision is an American interactive entertainment company. Headquartered in Santa Monica, California and founded in 2008 through the merger of Vivendi Games and Activision, the company is traded on the NASDAQ stock exchange under the ticker symbol NASDAQ: ATVI, and since 2015 has been one of the stocks that make up the S&P 500. Activision Blizzard currently includes five business units: Activision, Blizzard Entertainment, Major League Gaming, Activision Blizzard Studios, and King Digital Entertainment.  Some of their popular games include: World of Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm, Overwatch, Call of Duty,  kylanders, Destiny, Candy Crush Saga, Candy Crush Soda Saga, Candy Crush Jelly Saga, Farm Heroes Saga, Pet Rescue and Bubble Witch.

Major League Gaming is a professional eSports organization. MLG is headquartered in New York City, New York and was founded in 2002 by Sundance DiGiovanni and Mike Sepso. MLG has held official video game tournaments throughout the United States and Canada. The Boost Mobile MLG Pro Circuit was a television broadcast of Halo 2 MLG tournaments in 2006 and 2007, ESPN.com, and other broadband sites. The company has also been involved in television production, and game development. MLG's aim is to elevate computer and console game tournaments to viable competitive and spectator events.

Major League Gaming

Activision Blizzard, Inc. engages in the development and publication of entertainment content and services. It operates through the following segments: Activision Publishing Inc., Blizzard Entertainment Inc., and King Digital Entertainment. The Activision Publishing Inc. segment delivers content through both premium and free-to-play offerings, as well as by licensing software to third-party or related-party companies that distribute Activision products. The Blizzard Entertainment segment is engaged in delivering content through both premium and free-to-play offerings, and by licensing software to third-party or related-party companies that distribute Blizzard products. The King Digital Entertainment segment is focused on delivering content through free-to-play offerings and generates revenue from in-game sales and in-game advertising on the mobile platform. The company was founded in 1979 and is headquartered in Santa Monica, CA.

Earnings data Q4 2023

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Microsoft

Activision Blizzard CEO Bobby Kotick was in court Wednesday defending Microsoft's proposed $69 billion takeover of his video game company against an attempt by federal regulators to block the deal.

Activision Blizzard's CEO Bobby Kotick defends Microsoft's planned takeover of the video game-maker

Activision Blizzard Inc.'s ATVI, -0.47% chief executive promised Wednesday that the company's “Call of Duty” franchise will remain available to Sony Corp. SONY, +1.50% PlayStation users should the videogame publisher's acquisition by Microsoft Corp. MSFT, -0.05% get a green light from a federal judge. At a third day of evidentiary hearings into the $69 billion acquisition Wednesday, Activision Blizzard CEO Bobby Kotick said the company would alienate gamers and harm its reputation if it made the popular franchise exclusive to Microsoft's Xbox console.

Activision CEO: ‘You would have a revolt' if ‘Call of Duty' was taken off PlayStation

Sony

The company's popular Call of Duty franchise will remain available for PlayStation if the company is acquired by Microsoft, Activision's chief told a hearing that could decide the fate of the $75 billion deal.

Activision Says It Won't Withhold Call of Duty From Sony

Microsoft's $69 billion plan to acquire video game maker Activision Blizzard has been approved in Europe but U.K. and American regulators are still wary of the merger.

‘Call Of Duty' Studio Opening Spain Office As Activision And Microsoft Make Case For Merger

Sony Group Corp (NYSE:SONY) executive James Ryan has made it clear that the Japanese gaming giant will not stop in its fight to block Microsoft's US$69bn acquisition of rival Activision Blizzard. In a video deposition played in the San Francisco courts on Tuesday, Ryan warned the deal would result in a "degraded" experience for PlayStation gamers.

Microsoft Activision deal will give gamers a “degraded” experience, says Sony

Microsoft CEO Satya Nadella is due in court Wednesday to defend the company's proposed $69 billion takeover of video game maker Activision Blizzard against an attempt by federal regulators to block the deal.

Microsoft CEO Satya Nadella to defend planned takeover of game-maker Activision Blizzard in court

Electronic Arts

Take-Two Interactive Software

Since the back end of last year, video game stocks, as tracked by the VanEck Video Gaming and eSports ETF NASDAQ: ESPO, have been undergoing something of a resurgence. Having hit an all-time high in February 2021 as the pandemic inspired more and more housebound people to pick up or buy a controller, the good times understandably couldn't keep going forever as COVID receded.

Here's How to Rank the 3 Biggest Video Game Stocks

Shares of Microsoft Corp. NASDAQ: MSFT declined 1.92% on June 26, more than the broader market, while Activision Blizzard Inc. NASDAQ: ATVI rose 1.83%. The S&P 500 declined 0.41% in the session.

Activision Blizzard Shares up 1.83% Amid Regulators' Blunders

Video game publisher Activision Blizzard Inc. NASDAQ: ATVI is enjoying unprecedented success with its Diablo IV video game release on June 6, 2023. It has been the fastest-selling videogame in Blizzard's history, raking in $666 million in the first five days.

Is Diablo IV Causing a Resurgence in Activision Blizzard Stock?

Activision Blizzard has managed to maintain a five-year average revenue growth rate of 2.5% despite facing strong competition and evolving consumer preferences. The company's acquisition by Microsoft in May 2023 is expected to drive growth, with revenues for 2023 projected to reach $9.5 billion, an 11.9% increase from 2022. ATVI is working to improve its ESG impact, with plans to increase employee relations support, promote diversity and inclusion, and achieve net-zero carbon emissions by 2050.

Activision Blizzard: Unlocking The Power Of Entertainment

Microsoft has been eager to grow in mobile gaming to stay relevant with consumers, and previously had talks about acquiring Zynga.

Microsoft says it looked at acquiring Zynga but opted to go bigger with Activision

The Federal Trade Commission faced Microsoft in a San Francisco courtroom on Thursday to explain why the company's $69 billion takeover of Activision Blizzard should be blocked.

FTC argues why Microsoft's deal to buy Activision should be blocked

Today marked the first of a five-day court session that pits Microsoft against the US Federal Trade Commission, in the latest in a series of legal maneuverings over Microsoft's proposed $69 billion acquisition of video game developer Activision Blizzard.

The view from day one: Microsoft challenges FTC in court over acquisition of Activision Blizzard

A five-day hearing over Microsoft's $70 billion acquisition, which the Federal Trade Commission hopes to block, began Thursday in federal court.

Microsoft Says it Could Abandon Activision Deal if Judge Delays It

Microsoft Corp. MSFT, +1.00% and Activision Blizzard Inc. ATVI, +0.69% have their day in court Thursday as a federal judge decides whether to uphold the Federal Trade Commission's injunction of the $69 billion videogame publisher acquisition. At 8:30 am Pacific time, U.S. District Judge Jacqueline Scott Corley will begin an evidentiary hearing in San Francisco.

Microsoft, Activision hearing over FTC injunction blocking deal begins Thursday

Microsoft and the video game giant Activision Blizzard will face off Thursday against the US government in a high-stakes battle over one of the largest technology acquisitions in history.

Microsoft faces off against US government over Activision deal, with top execs set to testify

A federal judge will hear arguments over the Federal Trade Commission's request for an injunction against the deal on Thursday.

Microsoft's Activision Acquisition Gets Its Day In Court. What's at Stake.

The proceeding in San Francisco federal court is a major test for the Biden administration's more aggressive approach to antitrust enforcement.

Microsoft-Activision Deal Faces Test in FTC Hearing

Microsoft on Thursday will try to gain clearance to complete a $69 billion takeover of video game maker Activision Blizzard in a legal showdown with U.S. regulators that will reshape a pastime that's bigger than the movie and music industries combined.

Microsoft, U.S. regulators head to court over $69 billion deal that could reshape video gaming

Microsoft heads to a San Francisco courtroom on Thursday to advocate for the approval its $69 billion takeover of Activision Blizzard.

Microsoft, US regulators head to court over $69B deal

SANTA MONICA, Calif.--(BUSINESS WIRE)--Activision Blizzard, Inc. (NASDAQ: ATVI) today announced that it convened its 2023 Annual Meeting of Shareholders (the “Annual Meeting”) as scheduled and considered and voted upon all items of business. The Annual Meeting was held virtually, and a total of 669,737,743 shares were represented in person or by proxy, constituting approximately 85% of the company's total issued and outstanding common shares as of the record date. Shareholders voted on all prop.

Activision Blizzard Announces Results of Annual Meeting

Activision Blizzard's (ATVI) Crash Team Rumble is now accessible on both PlayStation and Xbox gaming consoles.

Activision Blizzard's (ATVI) Crash Team Rumble is Now Available

SANTA MONICA, Calif.--(BUSINESS WIRE)--It's time to get your rumble on! Crash Team Rumble, published by Activision Publishing, Inc. (NASDAQ: ATVI), is now available on PlayStation® 5, PlayStation® 4, Xbox® Series X/S, and Xbox One®. Crash™ fans can team up and #Bandicruit friends across PlayStation and Xbox platforms now and get in on the Wumpa fruit-collecting mayhem. Developed by the incredibly talented team at Toys for Bob, Crash Team Rumble brings an all-new experience to the multiplayer ta.

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Microsoft Corporation is trying to buy Activision Blizzard, Inc. for $95 per share. The likelihood and timing of a potential deal are mispriced. Here's one way to potentially profit in the weeks ahead.

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Microsoft, with its Activision Blizzard deal still uncertain, is advancing its cloud-centric subscription-based business model with a slate of coming Xbox videogames including “Starfield.”

News for Activision Blizzard Stock (ATVI)