6 Analysts Dissect Microsoft's Activision Blizzard Deal: 'A Call Option On Numerous Metaverse Plays'

Microsoft Corporation MSFT announced Tuesday its biggest-ever acquisition by agreeing to buy Activision Blizzard, Inc. ATVI for $68.7 billion.

Microsoft analysts are saying the deal is a huge positive for the software giant. 

The Microsoft Analysts: Credit Suisse analyst Phil Winslow maintained an Outperform rating and $400 price target on Microsoft shares.

BofA Securities analyst Brad Sills reiterated a Buy rating and $365 price target.

Morgan Stanley analyst Keith Weiss has an Overweight rating and $364 price target.

KeyBanc Capital Markets analyst Michael Turits has an Overweight rating and $373 price target.

Mizuho Securities analyst Gregg Moskowitz has a Buy rating and $350 price target.

RBC Capital Markets analyst Rishi Jaluria has an Outperform rating and $380 price target.

Microsoft Benefits From Massive Gaming Opportunity, Credit Suisse Says: Microsoft's Activision Blizzard deal underscores how content and cloud are kings in gaming and represents a step toward content leadership as well as the addition of incremental scale in cloud streaming, Credit Suisse analyst Winslow said.

"Activision Blizzard represents a significant addition of content and users that we believe positions Microsoft well to execute on a +$200 billion gaming opportunity," the analyst said.

Activision Blizzard can help expand the audience reached by Microsoft for not just paid subscriptions but also in-game transactions, providing the latter with multiple strategic monetization options in both the near- and long-term, Winslow said.

BofA Sees 4 Key Positives From Deal: The deal is a strategic and financial positive and can help Microsoft's gaming business across numerous platforms, including mobile, PC, console and cloud, BofA analyst Sills said.

Among the positives are the deal enabling stronger distribution for Activision Blizzard's existing titles, the analyst said. Secondly, the deal could result in potentially exclusive titles for Microsoft Game Pass, further increasing the value proposition, he said. 

Thirdly, the proposed deal is seen as a call option on numerous metaverse plays, with household franchises such as Call of Duty, World of Warcraft, Overwatch, Diablo and Candy Crush, Sills said. Microsoft's Azure, he said, stands to get added revenue/scale, given the company will likely port Activision Blizzard workloads to Azure.

Related Link: Microsoft Analyst Says Acquisition Of Activision Blizzard Is 'A Major Bet On Consumer'

Morgan Stanley On Financial Impact: Ignoring potential revenue synergies and cost savings and assuming a Dec. 31, 2022 closing, Morgan Stanley analyst Weiss expects a 65-basis point negative impact to Microsoft's gross margin in the calendar year 2023 and a 175-basis point impact to GAAP operating margin in 2023 and a 12-cent negative impact to EPS.

Leaving out amortization of acquired intangibles, but still incorporating the SBC and forgone interest income, 2023 EPS on an adjusted basis would be 2.57% or 30 cents accretive, he added.

"The combination of Microsoft and Activision Blizzard creates the potential for several new synergies, most notably share gains through Game Pass and stronger growth trajectory for the relatively new cloud gaming business." 

Microsoft To Become Third-Largest Gaming Company, KeyBanc Says: Microsoft's 2023 gaming segment revenue is estimated at $16.9 billion and Activision Blizzard's at $10.3 billion, KeyBanc analyst Turits said.

With this deal, Microsoft becomes the third-largest gaming company globally by revenue behind Tencent Holdings Limited (Pink: TCEHY) and Sony Group Corporation SONY, the analyst said. 

"ATVI brings a roughly 400M monthly active player base across 190 countries and three billion-dollar franchises, allowing Microsoft and its Game Pass subscription service to become one of the broadest content offerings in the industry."

The acquisition of Activision Blizzard could support a move toward the "metaverse," with Azure as the cloud computing platform, HoloLens as the virtual reality hardware and gaming and streaming leadership with Game Pass/xCloud, Turits said. 

Mizuho Sees Deal As Opportunistic Acquisition: Microsoft is opportunistically acquiring Activision Blizzard at an attractive valuation, Mizuho analyst Moskowitz said.

The acquisition meaningfully enhances the company's mobile gaming presence and presents scope for a stronger position in the Metaverse, the analyst said. He said he expects the company to report good overall fiscal second-quarter results after the close Tuesday. 

RBC Lays Out 3 Reasons For Being Positive On Deal: Microsoft's proposed Activision Blizzard buy enhances Xbox' value proposition as a vertically integrated gaming platform, RBC analyst Jaluria said.

It expands the Xbox into the large mobile market opportunity, the analyst said. Additionally, the deal strengthens the positioning of Xbox for the future of gaming, including Azure/xCloud, Game Pass, metaverse, he said. 

MSFT Price Action: Microsoft shares were advancing 2.31% to $309.65 Wednesday afternoon. 

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