- Share this article on Facebook
- Share this article on Twitter
- Share this article on Flipboard
- Share this article on Email
- Show additional share options
- Share this article on Linkedin
- Share this article on Pinit
- Share this article on Reddit
- Share this article on Tumblr
- Share this article on Whatsapp
- Share this article on Print
- Share this article on Comment
This year is off to a quick and game-changing start for the video gaming sector. After all, it is now two weeks, two mega-deals in the space as technology giant Microsoft unveiled a $68.7 billion takeover of powerhouse Activision Blizzard on Tuesday, eight days after Take-Two Interactive’s $12.7 billion deal to acquire Zynga.
Activision shares earned an analyst upgrade on the news, with MKM Partners’ Eric Handler changing his rating from “sell” to “neutral” with a $95 price target, up from $54, given that Microsoft is set to pay that amount per share. “In our opinion, this transaction creates a win-win scenario for both companies,” Handler argued. “For Activision, it is getting acquired at a 45 percent premium to its closing price from Friday, Jan. 14; it offloads the pressures associated with its internal issues (a reference to sexual harassment and discrimination claims) to another company; and it de-risks concerns about its growth outlook for 2022.”
Related Stories
Added the finance expert: “For Microsoft, the acquisition further bolsters its growing portfolio of strong franchise brands and improves its positioning across multiple gaming platforms.”
Some on Wall Street had already taken the Take-Two transaction for Zynga as a possible sign for an opening of the deal floodgates in the gaming sector. And that sentiment strengthened after the second deal, which would bring together Microsoft’s Xbox game platform and Xbox Game Studios with Activision’s franchises, including Call of Duty, Warcraft and Tony Hawk, creating the world’s third-largest gaming company by revenue behind Tencent and Sony.
“Consolidation continues,” Truist Securities analyst Matthew Thornton highlighted in a first-take report. And he pointed out that gaming deals struck were “both horizontal content for content (Electronic Arts-Glu Mobile, Electronic Arts-Codemasters, Take-Two-Zynga, others) and vertical platform for content (Microsoft-Bethesda, Microsoft-Activision, others).”
Handler explained in a note to investors: “Scale matters in dynamic industries, such as video games.” And he signaled that he is expecting more dealmaking down the line. “Who is next?” he wrote. “Based on today’s events, we would think Sony would at least want to kick the tires on Electronic Arts or Take-Two as the number of independently owned, billion-dollar franchises, with cross-platform potential, become more scarce.”
The deal activity could also energize sector shares. “Video game stocks were oversold, and this deal shines a positive light on the group,” wrote Stifel analyst Drew Crum, also highlighting that it was “the second major transaction involving a video game publisher in as many weeks. “Using trailing 12 months non-generally accepted accounting principles earnings per share, the implied valuations for other relevant companies within our coverage list are as follows: Electronic Arts (“buy”) $170 per share; Take-Two (“buy”) $131 per share; and Ubisoft (“buy”) €56 ($63.48) per share.”
Crum also called the deal “a favorable near/intermediate-term outcome for Activision shareholders, and the path of least resistance for Activision Blizzard as a company, given the recent workplace turmoil, disappointing Call of Duty: Vanguard release and questions concerning the timing and quality of upcoming Blizzard titles.”
THR Newsletters
Sign up for THR news straight to your inbox every day