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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INNOVATE Corp

Chris DeMuth Jr. discusses his investment approach, focusing on mispriced securities. His thoughts on current market conditions, highlighting investment interests in energy and potential opportunities in Activision.

Why Chris DeMuth Jr. Likes Activision, Oil & Gas + Innovate

Microsoft

Ubisoft Entertainment SA

Under the restructured agreement, cloud rights to Activision Blizzard's games will be divested to Ubisoft prior to Microsoft's acquisition.

Ubisoft shares pop 9% on revised Microsoft-Activision deal

Microsoft has been trying to buy Activision Blizzard for $68.7 billion since 2022. But UK and US regulators are concerned that the deal could stifle competition in gaming.

Microsoft says it will sell Activision streaming rights to Ubisoft to unblock its takeover bid

Microsoft has made a major concession to UK authorities in a bid to remove the last remaining regulatory obstacle to its huge takeover of Activision Blizzard.

Microsoft gives ground on streaming in bid to remove UK block on Activision deal

British competition regulators opened a new investigation Tuesday into Microsoft's revamped bid to buy video game maker Activision Blizzard, representing the last major hurdle to closing one of the biggest deals in tech history.

Microsoft revamps deal for video game maker Activision Blizzard. The UK will investigate again

As part of the deal, Microsoft would sell the non-European streaming rights to Activision games to Ubisoft.

Microsoft Submits New Activision Deal to U.K. Regulator. Why It's a Surprise.

Microsoft said it would sell cloud gaming rights to French rival Ubisoft to assuage concerns the deal would hamper competition in the nascent cloud gaming sector.

Microsoft Renews Bid To Buy Activision Amid Competition Concerns

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Activision Blizzard shares ATVI, +0.28% rose 1% after Microsoft reached a deal with Ubisoft Entertainment to license the cloud streaming rights to Activision games, in an attempt to secure approval from the U.K. competition regulator. Microsoft stock MSFT, +1.71% also rose in premarket trade.

Zoom Video stock climbs after earnings, Activision Blizzard advances on Microsoft pact and other stocks on the move

The UK's antitrust regulator has confirmed its April decision to block the $68.7BN Microsoft-Activision gaming mega-merger — rejecting arguments by Microsoft that it should overturn its original prohibition because of developments since the original decision.

UK's CMA confirms decision to block Microsoft-Activision but opens fresh probe of restructured deal proposal

The UK's competition regulator has launched a fresh investigation into Microsoft's £55bn takeover of Call of Duty maker Activision Blizzard after the tech firm offered a new remedy in a bid to get the deal over the line.

Microsoft in fresh bid to get Activision Blizzard takeover past UK regulator

The UK's Competition and Markets Authority (CMA) has initiated a new Phase-1 investigation into Microsoft Corporation (NASDAQ:MSFT)'s revised proposal to acquire Activision Blizzard Inc (NASDAQ:ATVI). Microsoft's revised deal follows confirmation by the CMA that the original deal would be blocked “to protect innovation and choice in cloud gaming” Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years (excluding the European Economic Area).

Microsoft pushes fresh takeover deal for Activision Blizzard

Microsoft has signed a 15-year deal to license Call of Duty and other Activision Blizzard games to Ubisoft in its latest bid to win antitrust approval for its $68.7 billion acquisition.

Microsoft signs 15-year cloud streaming deal with Ubisoft in latest bid to win Activision Blizzard approval

Microsoft will change the terms of its Activision Blizzard buyout offer in a new effort to win approval from the U.K. competition regulator.

Microsoft proposes Ubisoft license to win U.K. approval for Activision Blizzard buyout

CMA opens new investigation into acquisition as tech firm offers to sell cloud gaming rights to Ubisoft

Microsoft submits new Activision Blizzard deal to UK regulator

Microsoft on Tuesday submitted a new deal for the takeover of Activision Blizzard, offering a spate of concessions after U.K. regulators rejected its initial proposal.

Microsoft submits new Activision Blizzard takeover deal to British regulator after initial block

Ubisoft Signs Deal for Streaming Call of Duty and Other Activision Blizzard Games  Cloud Streaming Agreement Will Enable Players to Stream Activision Blizzard Titles via a Wide Range of Subscriptions and Services, including Ubisoft+    PARIS – August 22, 2023 – Today, Ubisoft announced a transaction giving Ubisoft the cloud streaming rights for Call of Duty and all other Activision Blizzard titles releasing over the next 15 years once Microsoft's acquisition of Activision Blizzard is completed. This will enable Ubisoft to bring cloud streaming access of Activision Blizzard games to more players all around the world.

Ubisoft Signs Deal for Streaming Call of Duty and Other Activision Blizzard Games

Microsoft's planned acquisition of Activision Blizzard for $69 billion presents an attractive opportunity for potential investors. If the deal fails, MSFT is required to pay ATVI a $3B fee. The strategic decision not to make Call of Duty an exclusive title increases the likelihood of the deal being successful.

Activision: A Buy Whether The Deal Closes Or Not

Activision Blizzard's stock has surged in value from its 2019 lows, indicating a robust bullish outlook in the short and long run. Berkshire Hathaway's investment in Activision Blizzard and subsequent reduction of its stake highlight the stock's attractiveness among investors. Technical analysis shows a bullish trajectory for Activision Blizzard's stock, with potential for further price growth and buying opportunities.

Activision Blizzard: Buy The Upward Surge (Technical Analysis)

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The Zacks Toys - Games - Hobbies industry benefits from robust demand sports toys, fashion dolls and accessories and STEM toys bodes well. Stocks like ATVI, MAT and TTWO are well-positioned to benefit.

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The company reported an upbeat Q2 and is also addressing the regulatory hurdles surrounding the proposed Microsoft acquisition of Activision Blizzard.

What's Happening With Activision Blizzard Stock?

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Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately. On July 11, my shares of Activision Blizzard were up more than 10% on that day. Each year, I do a complete review of my portfolios in December. I like to take some time off to reflect on the year and review my asset, sector, and stock allocations.

The ATVI Story - July Dividend Income Report

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Berkshire Hathaway bought shares of five different stocks in the second quarter, including three new positions. The conglomerate was a net seller of stocks, selling shares of seven different companies.

Here Are All 5 Stocks Warren Buffett and His Team Bought in the Second Quarter -- and the 7 Stocks Berkshire Hathaway Sold

Greenlight Capital, the hedge fund of David Einhorn upped its stake in Net Power and added stakes in Onex Corp. and Activision.

David Einhorn's Greenlight Adds Activision Blizzard, Shuns AI Hype

Berkshire Hathaway bought up more than $800 million in home construction stocks last quarter while trimming positions in energy, insurance, materials, and healthcare.

Warren Buffett Dumps $3 Billion in Activision, Buys Into Home Construction Firms

First Horizon National

David Einhorn's Greenlight Capital Inc. acquired big stakes in Activision Blizzard Inc. while the videogame publisher's fate on being acquired by Microsoft Corp. was still very much up in the air, and First Horizon Corp. following the recent regional-bank crisis.

News for Activision Blizzard Stock (ATVI)