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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Warren Buffett's Berkshire Hathaway Inc. took new stakes in home builders, bulked up on Capital One Financial Corp. and backed away from Activision Blizzard Inc. in the second quarter, according to quarterly disclosures filed on Monday.

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Thanks to the regulatory process, this deal will significantly enhance competition in the video game industry while securing workers' rights and consumer interests.

A merger that's good for workers and consumers

The action role-playing game is Blizzard's fastest selling game ever, crossing $666 Million in sales within five days of launch.

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UK's CMA to hear more views on Microsoft's Activision Blizzard deal

Video-game maker Activision sued internet personality Anthony Fantano in Los Angeles federal court on Monday, seeking a declaration that syncing his viral audio clip to one of its TikTok videos did not violate his publicity rights or imply that he endorsed the company.

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Activision Blizzard (ATVI) and Carvana (CVNA) were able to beat earnings expectations last Wednesday, adding fuel to the notion that now may be a good time to buy.

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The US Federal Trade Commission is suspending its attempt to block Microsoft's buyout of video gaming giant Activision Blizzard, a legal filing showed.

US regulator backs off Microsoft-Activision challenge

The Federal Trade Commission (FTC) has paused its in-house legal challenge to Microsoft's $69 billion acquisition of gaming developer Activision Blizzard, allowing for potential settlement talks. In an order on Thursday, FCT secretary April J.

FTC hits pause on in-house legal challenge to Microsoft-Activision Blizzard merger

The FTC said it is pausing its in-house trial against Microsoft's $75 billion takeover of game developer Activision Blizzard, another signal that the deal is winning over regulators.

FTC Withdraws Case Against Microsoft-Activision Deal

Microsoft's $69 billion deal of Activision Blizzard is inching closer as the FTC pauses its in-house case but the U.K. regulator said Friday it still want concessions.

Microsoft-Activision Deal Gets a Boost From the FTC. U.K. Regulator Still Holds Out.

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The asset manager of Norway's largest bank tripled its investment in Activision, doubled its Lucid Group stake, and cut positions in GM and Ford.

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My portfolio is up 12.40%, from $197,155.42 on January 2nd, 2023, to $221,602.34 on July 5th before the bell. Inflation and higher interest rates are difficult to handle as their impact is long-lasting and takes time to manifest themselves. Since the beginning of the year, NTR is on a downtrend mostly related to the same narrative: commodity prices have declined.

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The deal was set to go to trial before an FTC administrative law judge on Aug. 2.

FTC withdraws case against Microsoft-Activision deal before in-house judge

The Federal Trade Commission is ready to pause its in-house trial against Microsoft Corp.'s MSFT, -2.31% $69 billion acquisition of Activision Blizzard Inc. ATVI, +0.10%, opening the door to potential settlement talks, Bloomberg News reported Thursday. Such an outcome is considered a victory for Microsoft and Activision in their pursuit of the biggest gaming deal despite regulatory challenges in the U.S. and the U.K. Microsoft and the FTC were not immediately available for comment.

FTC may pause opposition to Microsoft-Activision merger: report

The FTC is expected to file an order later today.

FTC Could Pause Microsoft-Activision Merger Fight After Court Loss—Making Settlement Possible, Report Says

Although the revenue and EPS for Activision Blizzard, Inc (ATVI) give a sense of how its business performed in the quarter ended June 2023, it might be worth considering how some key metrics compare with Wall Street estimates and the year-ago numbers.

Activision Blizzard, Inc (ATVI) Reports Q2 Earnings: What Key Metrics Have to Say

The amended deal also increased the fee that the Windows maker owes Activision in case either side scraps the takeover - to $3.5 billion from $3 billion if it does not close by Aug. 29, and to $4.5 billion after Sept. 15.

Microsoft, Activision extend $75B deal deadline to secure UK approval

Warren Buffett's Berkshire Hathaway (NYSE: BRK-A , NYSE: BRK-B ) recently cut a substantial amount of its holdings of Activision Blizzard (NASDAQ: ATVI ) stock just days before the Federal Trade Commission failed in its bid to block Microsoft's (NASDAQ: MSFT ) nearly $70 billion acquisition of the video game publisher. According to a recent 13G filing published Monday, Berkshire Hathaway possesses a 1.9% stake in Activision, via its 14,658,121 shares of the company.

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Activision's CEO Bobby Kotick, during a CNBC interview, addressed shareholder concerns about the company's impending deal, expressed optimism about overcoming regulatory challenges in the UK, and underscored the company's pursuit of AI and machine learning talent amid a competitive landscape.

Kotick Defends Deal Terms

Activision Blizzard, Inc (ATVI) came out with quarterly earnings of $1.08 per share, beating the Zacks Consensus Estimate of $0.90 per share. This compares to earnings of $0.49 per share a year ago.

Activision Blizzard, Inc (ATVI) Beats Q2 Earnings and Revenue Estimates

Activision Blizzard, Inc revealed the official postponement of the deadline for closing its merger with Microsoft Corp in a bid to buy more time for the $69 billion agreement to gain approval from the UK's Competition and Markets Authority (CMA). Activision Blizzard executive vice president of corporate affairs Lulu Cheng Meservey announced on Twitter a three month extension to the deal after it failed to go through under its initial deadline of July 18.

News for Activision Blizzard Stock (ATVI)