Win Over FTC Should Allow Microsoft To Close Acquisition of Activision

Senior Equity Analyst

Neil Macker

Revenue segments as reported by the company.

Blizzard

King

Activision

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Restructuring

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

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

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Microsoft

Britain's antitrust watchdog, the only major regulator preventing the deal from closing, says it is ready to consider a new proposal.

Microsoft's Win Puts U.K. Regulator in Challenging Spot Over Activision Deal

Electronic Arts

GameStop

Video games continue to be the fastest growing segment of the entertainment industry. Worldwide revenue generated from the sale of video games is forecast to reach nearly $400 billion in 2023, and to grow more than half a trillion dollars by 2027.

3 Doomed Gaming Stocks Destined for Disaster

Activision Blizzard, Inc (ATVI) witnessed a jump in share price last session on above-average trading volume. The latest trend in earnings estimate revisions for the stock suggests that there could be more strength down the road.

Activision Blizzard, Inc (ATVI) Moves 10.0% Higher: Will This Strength Last?

Here is how Activision Blizzard, Inc (ATVI) and Carnival (CCL) have performed compared to their sector so far this year.

Has Activision Blizzard (ATVI) Outpaced Other Consumer Discretionary Stocks This Year?

The Competition and Markets Authority (CMA) has shared a statement suggesting that it could climb down from its staunch opposition to Microsoft Corporation (NASDAQ:MSFT)'s US$69bn megamerger with video games rival Activision Blizzard Inc (NASDAQ:ATVI). The British competition watchdog has been steadfast in its opposition to the takeover on anti-competitive grounds relating to Activision's AAA Call of Duty gaming franchise.

British watchdog willing to reconsider ban on Microsoft-Activision merger

The temporary restraining order that prevents Microsoft and Activision from closing the deal will expire after Friday.

FTC could appeal Microsoft-Activision ruling as soon as Wednesday

Britain's competition regulator, the staunchest opponent of Microsoft's $69 billion acquisition of gaming giant Activision Blizzard, may be ready to negotiate.

The UK — which blocked the Microsoft-Activison deal — is ready to negotiate. Here's what happens next

Activision Blizzard Inc. NASDAQ: ATVI shares rose to the call of duty on July 11, advancing 10.02% in heavy trading volume as a federal judge gave the OK for Microsoft Corp. NASDAQ: MSFT to proceed with its acquisition of the game maker.

Activision Surges 10% As Judge OK's Microsoft Acquisition Deal

Activision Blizzard stock has reached a new 52-week high following a federal court ruling that Microsoft can continue with its planned acquisition. The court ruling dismissed the FTC's claim that the merger could lessen competition, suggesting instead that it could increase consumer access to Activision content. While the Microsoft deal is likely to close, it is not guaranteed, and the remaining takeover spread is slim, suggesting that locking in gains could be a sensible move for investors.

Activision Blizzard Surges To New 52-Week High On Deal Optimism

Microsoft Corporation's (NASDAQ:MSFT) apparent defeat of US regulators over its acquisition of Activision Blizzard will "open the floodgates" to more tech mergers and acquisitions, according to investment bank Wedbush. The district court judge in the Federal Trade Commission case seeking to block the acquisition of the Call of Duty video game maker ruled in favour of the Redmond, Washington company, rejecting the FTC's request for a preliminary injunction as the antitrust regulator was found to have not demonstrated a likelihood that the merger would substantially lessen competition.

Microsoft's Activision victory a 'black-eye for regulators, opens floodgate for tech M&A'

Longtime friends Warren Buffett and Bill Gates are buddies and share many hobbies. And it seems making money on S&P 500 stocks is one of them.

Warren Buffett Makes $410 Million In A Day From His Pal's Company

The UK competition watchdog is ready to reopen talks with Microsoft after the company agreed to halt legal proceedings over its planned merger with Activision Blizzard.

Competition watchdog to reopen talks with Microsoft over Activision Blizzard merger

The FTC's attempt to block Microsoft's acquisition of Activision Blizzard has been shot down. What comes next for all three parties?

What happens to Microsoft and Activision Blizzard post-FTC?

Activision Blizzard, VMware, and other stocks are rallying Tuesday after a federal judge ruled that Microsoft can close on its Activision deal

Microsoft's Win in the Activision Case Could Spur a Merger Revival

A federal judge helped pave the way for Microsoft to complete its $68.7 billion acquisition of Activision Blizzard.

Judge Paves Way For Microsoft's $68.7 Billion Purchase of Activision Blizzard

Microsoft on Tuesday cleared a significant hurdle to its $68.

Analysis: Legal battle is only the first step to success in Microsoft's acquisition of Activision

A California judge ruled in favor of Microsoft's $69 billion acquisition of video game giant Activision Blizzard on Tuesday, striking down an attempt by the Federal Trade Commission to block the massive merger.

Microsoft Can Close $69 Billion Activision Blizzard Merger, Judge Rules

Berkshire Hathaway is poised to score a $1 billion profit after Microsoft prevailed against the FTC in its bid to acquire Activision. Activision Blizzard stock surged more than 10% on Tuesday to just a couple dollars below its $95 buyout price.

Warren Buffett's Berkshire Hathaway is poised to score a $1 billion profit after Microsoft beats FTC in Activision case

An FTC campaign to rein in tech giants suffers another setback, but will likely persist.

Activision Win Is Big for Microsoft---Smaller for Big Tech

The FTC's challenge of the $68.7 billion deal between Microsoft and Activision has been one of its biggest swings under Chair Khan, but it faces a major hurdle.

Microsoft-Activision ruling highlights Lina Khan's struggles to fight tech

Shares of Activision Blizzard popped after a judge denied the Federal Trade Commission's injunction request to stop Microsoft from acquiring it.

Activision Blizzard stock surges 11% after judge rules on Microsoft deal

Shares of Activision soared as a U.S. District Court rejected the FTC's efforts to block its merger with Microsoft. U.K. regulators seem open to negotiations to let the deal go through.

Perseverance Yields Microsoft, Activision a Big Win

Activision Blizzard shares rocketed after a court allowed Microsoft to proceed with its acquisition of the video game publisher.

Activision Stock Jumps As U.S. Judge Clears Hurdle To Microsoft Buyout

Activision Blizzard's stock price peaked around $92 a share Tuesday after a federal judge in California ruled it could merge with Microsoft.

Activision Blizzard Stock Surges 11% After Judge Allows Microsoft Merger

Activision Blizzard stock popped 11% after a judge paved the way for Microsoft to complete its takeover of the game publisher.  The decision is a blow to the Federal Trade Commission, which had set a hearing date on the merger for August.

News for Activision Blizzard Stock (ATVI)