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.

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VanEck Video Gaming and eSports ETF

Fidelity Disruptive Communications ETF

Global X Video Games & Esports ETF 

Look into Activision-heavy ETFs to capitalize on the Microsoft-Activison deal.

Activision Blizzard Heavy ETFs in Spotlight

Microsoft

British antitrust regulators on Friday extended their deadline to issue a final order blocking Microsoft's $69 billion plan to buy video game maker Activision Blizzard, allowing them to consider the U.S. tech giant's "detailed and complex submission" pleading its case.

Microsoft gets more time from UK to plead case to buy video game maker Activision

The U.K.'s Competition and Markets Authority has pushed the deadline for its final decision on Microsoft's $69 billion acquisition of Activision Blizzard to August 29.

Microsoft-Activision Review Extended by U.K. Regulator. It Could Be the Last Obstacle.

One of Buffett's money managers initiated a position in Activision Blizzard just months before the proposed merger was announced. Buffett noted that the stock was still trading well below the takeover price, so he boosted his stake.

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Mitsui & Co Ltd

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The Oracle of Omaha has overseen a greater-than 4,200,000% return on Berkshire Hathaway's Class A shares (BRK.A) since becoming CEO. A top reason for Buffett's long-term outperformance is his penchant for portfolio concentration.

90% of Warren Buffett's $372 Billion Portfolio Is Invested in Only 14 Stocks

The U.K. Competition and Markets Authority extended the deadline of its review of Microsoft's takeover of Activision Blizzard to August 29.

UK regulator extends deadline for Microsoft-Activision probe by six weeks

The Federal Trade Commission on Thursday asked an appeals court to temporarily block Microsoft Corp.'s $69 billion acquisition of Activision Blizzard Inc. while it challenges a ruling earlier this week green-lighting the deal.

FTC files appeal, again seeks to block Microsoft-Activision deal

The agency is asking for a stay that could keep the deal from closing by the July 18 deadline.

FTC Continues Fight to Block Microsoft's $75 Billion Deal for Activision

Nasdaq replaced Activision in the Nasdaq 100 with The Trade Desk. But maybe it should have waited a little longer.

Nasdaq Pulls Activision From Index Due to Microsoft Deal. Did It Jump the Gun?

Activision Blizzard, Inc (ATVI) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Will Activision Blizzard, Inc (ATVI) Beat Estimates Again in Its Next Earnings Report?

The FTC will appeal a California judge's decision to allow Microsoft's $69 billion purchase of Activision Blizzard, according to a court filing late Wednesday.

FTC appealing judge's ruling in Microsoft-Activision deal

The Federal Trade Commission is investigating the ChatGPT artificial intelligence system of OpenAI, whose biggest investor is Microsoft.

Microsoft News: FTC Probes Open AI's ChatGPT And Appeals Activision Ruling

Nintendo

Sony

Xbox gamers may see a flurry of Activision Blizzard's games added to their Game Pass subscription once the deal is completed.

Here's How Microsoft's Impending Acquisition Of Activision Blizzard Impacts PlayStation And Nintendo Gamers

Appeal by competition watchdog in US is latest twist in complex saga involving trio of regulators

Will Microsoft be able to close $69bn deal for Activision Blizzard?

This week a US judge rule against the FTC in their case to block the transaction, however by Wednesday the FTC had already lodged an appeal of that decision.

Judge Rules Against FTC In Microsoft Activision Case, But They've Already Filed An Appeal

A judge blocked the FTC's preliminary injunction against Microsoft closing its deal with Activision Blizzard. The last hurdle for Microsoft to overcome is the CMA's decision to block the deal.

Wait, the Microsoft Acquisition of Activision Blizzard Just Got Approved?

The stay on the merger lifts on Friday, while the two companies have their own deadline to push through the deal next week.

FTC to Appeal Microsoft-Activision Ruling. But Time Is Running Out.

US regulators have launched another attempt to block a merger between Microsoft Corporation (NASDAQ:MSFT) and gaming firm Activision Blizzard Inc (NASDAQ:ATVI). Following a rejected bid to block the prospective US$69bn (£53bn) deal, the Federal Trade Commission (FTC) appealed Judge Jacqueline Scott Corley's decision on Wednesday.

Microsoft Activision merger facing last-ditch block attempt in US

The Federal Trade Commission said Wednesday it would appeal a decision from earlier this week by a district court judge allowing Microsoft to close its $69 billion Activision Blizzard merger.

FTC to appeal Microsoft/Activision Blizzard merger

The Federal Trade Commission late Wednesday filed notice that it will appeal a judge's ruling this week that gave Microsoft Corp. the green light to proceed with its $69 billion acquisition of Activision Blizzard Inc.

FTC will appeal judge's ruling clearing Microsoft-Activision deal

The U.S. Federal Trade Commission will appeal a court order from earlier this week that allowed Microsoft's $68.7 billion acquisition of Activision Blizzard to move forward.

FTC will appeal court ruling that paved way for Microsoft's acquisition of Activision

A California judge ruled in favor of the massive Microsoft and Activision Blizzard deal on Tuesday.

FTC Appeals Ruling Letting $69 Billion Microsoft-Activision Deal Close

The Federal Trade Commission plans to bring its effort to stop Microsoft from closing its Activision Blizzard deal to the 9th Circuit appeals court. A San Francisco federal judge ruled in favor of the two companies on Tuesday.

FTC says it will appeal to block Microsoft-Activision deal

In early 2022, tech-titan Microsoft MSFT made a major splash, announcing the acquisition of Activision Blizzard ATVI for roughly $70 billion. It was a massive deal that caught extensive attention, ranking as the largest acquisition in the video game industry's history.

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Activision Blizzard (ATVI)-owned King division's Candy Crush Saga announces partnership with the Barbie movie.

News for Activision Blizzard Stock (ATVI)