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's long-running effort to buy Activision got a boost when a federal judge ruled against the Federal Trade Commission's effort to slow the process. U.K. antitrust authorities are the only current obstacle to closing, and there are signs there could soon be a resolution there as well.

Why Activision Blizzard Stock Is Surging Today

Microsoft

A federal judge sided with Microsoft on Tuesday in a setback for the U.S. Federal Trade Commission's attempt to block the tech giant's $68.7 billion acquisition of video-game publisher Activision Blizzard.

Microsoft wins pivotal court ruling over FTC, clearing key hurdle for $69B Activision deal

A California judge has ruled in favor of Microsoft's acquisition of Activision Blizzard, rejecting the Federal Trade Commission's (FTC) request for a preliminary injunction. The decision allows Microsoft to proceed with the merger, which is subject to intense scrutiny from the competition watchdog.

Microsoft gets US court nod for Activision deal

By blocking the FTC's request for a preliminary injunction, Microsoft and Activision Blizzard have a clear path to close the acquisition.

Judge denies injunction in Microsoft's Activision Blizzard acquisition

Activision Blizzard Inc (NASDAQ: ATVI) gained more than 5.0% this morning after its $69 billion deal with Microsoft Corp (NASDAQ: MSFT) took a big step towards completion. U.S. federal judge rejects FTC's motion On Tuesday, a U.S. federal judge rejected the FTC's motion for an emergency injunction to block Microsoft from taking over Activision Blizzard.

Microsoft-Activision deal takes a big step towards completion

The U.S. Federal Trade Commission cannot stop Microsoft's proposed $69 billion purchase of Activision Blizzard, California judge Jacqueline Scott Corley ruled on Tuesday.

FTC loses case to block Microsoft Activision $69B deal

Judge dismisses FTC request to halt deal over concerns it would give Microsoft exclusive access to Activision games

Microsoft may proceed with $69bn Activision Blizzard deal, judge rules

A federal judge has rejected the Federal Trade Commission's effort to stop Microsoft's acquisition of Activision, ruling that the government had not shown that the transaction would substantially lessen competition.

Federal Judge Rejects FTC Effort To Halt Microsoft-Activision Merger

A federal judge will not block Microsoft from closing its $69 billion deal to acquire video game giant Activision Blizzard, a defeat for US regulators who had asked for a temporary injunction while legal challenges to the merger unfold.

Microsoft can close its Activision merger, federal judge rules

The FTC's concern was that the deal would potentially preclude the availability of those videogames on other platforms.

Microsoft's $69B deal to buy Activision gets green light after judge denies FTC injunction

Microsoft and Activision Blizzard earned a big win in court today, as a federal judge ruled that the Federal Trade Commission cannot block the $68.7 billion merger.

Microsoft's Activision Blizzard merger can't be blocked by FTC, judge rules

Shares of Activision Blizzard Inc. ATVI, +4.99% rose Tuesday after a federal judge denied the Federal Trade Commission injunction blocking the videogame publisher's acquisition by Microsoft Corp. MSFT, -0.61% Activision shares rallied 5%, while Microsoft shares declined 0.5%. When hearings began in late June to determine whether the FTC had a case in blocking the deal, Microsoft had stated the deal hinged upon the judge's decision.

Activision Blizzard shares rally as judge denies FTC injunction clearing Microsoft acquisition

Microsoft could now complete its purchase of the video game giant as soon as this month, but it is still blocked from closing in Britain.

Court Ruling Clears Path for Microsoft to Buy Activision

The companies can complete the deal before a Federal Trade Commission hearing that is scheduled for August.

Microsoft Can Close Its $75 Billion Buy of Activision Blizzard, Judge Rules

A federal judge in San Francisco has denied the Federal Trade Commission's motion for a preliminary injunction to stop Microsoft from completing acquisition of video game publisher Activision Blizzard.

Microsoft-Activision deal moves closer as judge denies FTC injunction request

Candy Crush Saga Takes Players on a Summer Road Trip with Barbie in New & Exclusive In-Game Content NEW YORK , July 11, 2023 /PRNewswire/ -- Today Candy Crush Saga announced its newest (and pinkest) partnership with the most anticipated movie of the summer, BARBIE. On July 13, 2023, just days before the film hits theaters on the 21st, the brand will launch in-game BARBIE experiences that feature exclusive content accessible only to Candy Crush Saga players.

Hi BARBIE, Come On, Let's Go

Electronic Arts

Nintendo

The modern Nintendo isn't the Nintendo of old, but it's certainly valued like it is. Electronic Arts has durable titles that continue to grow its sales each year.

3 Top Gaming Stocks to Buy in July

From the start, Microsoft's hearing against the US Federal Trade Commission was going to be interesting to anyone who follows the business end of the games industry.

What we learned from Microsoft vs. the FTC in tech giant's battle to acquire Activision Blizzard

Many internal Microsoft documents have come up in conversations with executives or have been released as part of a hearing over its Activision Blizzard deal.

The biggest takeaways from Microsoft's courtroom showdown with the FTC over Activision Blizzard

SAN FRANCISCO — The fate of what could be the priciest merger in tech industry history is now in the hands of a federal judge who must decide whether to stop Microsoft from closing its deal to buy videogame company Activision Blizzard.

‘All of this is for a shooter videogame': Fate of Microsoft-Activision deal now in judge's hands

The fate of what could be the priciest merger in tech industry history will soon be in the hands of a federal judge who must decide whether to stop Microsoft from closing its deal to buy video game company Activision Blizzard.

Microsoft makes final case for Activision Blizzard deal as federal judge decides whether to block it

Microsoft CEO Satya Nadella told a judge Wednesday that his company's proposed $69 billion takeover of video game-maker Activision Blizzard will be good for the gaming industry, remarks that came as he defended the deal against an attempt by federal regulators to block it.

Microsoft CEO Nadella tells a judge his planned Activision takeover is good for gaming

SAN FRANCISCO — Microsoft CEO Satya Nadella told a judge Wednesday that his company's proposed $69 billion takeover of videogame-maker Activision Blizzard will be good for the gaming industry, remarks that came as he defended the deal against an attempt by federal regulators to block it.

Microsoft CEO claims Activision deal would be good for gaming industry

Scott Corley will decide whether Microsoft must hold off on consummating the deal to give the FTC more time to evaluate its antitrust merits, according to AP.

If $68.7 Billion Activision Blizzard Deal Dies, Microsoft's Stock Is Likely To Rise

In federal court, Satya Nadella and Bobby Kotick opposed an attempt by the F.T.C. to delay Microsoft's $70 billion acquisition of a video game giant.

News for Activision Blizzard Stock (ATVI)