Regulatory roadblocks for Microsoft's planned purchase of Activision Blizzard (NASDAQ: ATVI) persist.
The transaction was recently blocked by the UK Competition and Markets Authority for cloud gaming competition concerns. Microsoft intends to appeal, but on April 26 ATVI shares dropped 11% to $77 as a result of the news.
The Federal Trade Commission (FTC) in the United States petitioned a court late last year to stop Microsoft's planned purchase on the grounds that it would reduce competition in the video game market. Nonetheless, Microsoft has been flexible.
It has deals in place with Nintendo and Nvidia to distribute Call of Duty on their systems for the foreseeable future, and it has extended a similar offer to Sony.
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Blizzard’s Standing in the Gaming Markets
American video game holding firm Activision Blizzard, Inc.[a] is headquartered in Santa Monica. In July 2008, Activision Publishing's parent business, Activision, Inc., merged with Vivendi Games, a French video game publisher.
It has been a component of the S&P 500 Index since 2015 and is listed on the Nasdaq under the name ATVI. In addition to Activision Blizzard Studios, the company also operates Blizzard Entertainment, King, Activision Publishing, and Major League Gaming.
As part of Activision Publishing, the firm owns and maintains a number of other studios, such as Treyarch, High Moon Studios, Infinity Ward, and Toys for Bob. Activision Blizzard is known for creating popular franchises including World of Warcraft, Diablo, StarCraft, Heroes of the Storm, Overwatch, Hearthstone, and Candy Crush Saga, among many more.
Overwatch and Call of Duty were two of the titles that received significant funding for competitive play while Blizzard Entertainment was in charge. There have been several records set by Activision Blizzard's releases.
As of March 2018, the company's sales and market capitalization made it the biggest video game publisher in both the Americas and Europe.
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Costs of the Thwarted Acquisition
It would seem that Microsoft's attempt to acquire Activision Blizzard has been thwarted, but at what cost?
ActivisionATVI +0.1% remains the top pick in our opinion. Whether or not the transaction goes through, Blizzard is set up for success. The corporation is responsible for some of the most popular video game brands, such as the Call of Duty and Candy Crush series.
The first quarter results for 2023 that were revealed yesterday by Activision were higher than street projections, suggesting that 2023 will be a good year for the corporation. Its net bookings of $1.86 billion represent a year-over-year increase of 25%.
The success of the company's main series, such as Warfare, Call of Duty, Diablo, Overwatch, and Candy Crush, contributed to its overall success. Total monthly active users (MAUs) for the company increased from 368mn in Q1 March to 372m by Q4 2022.
In June 2023, Activision Blizzard will release Diablo IV, a launch that will certainly boost the company's top line in the ensuing quarters. In 2023, we anticipate bookings for the firm to be close to $9.4 billion, representing growth in the low double digits year over year.
Its operating margin dropped by more than 650 basis points in 2022 due to price increases, but it is expected to recover soon. Information is also available in our compared dashboard of Activision Blizzard's operating income. The firm has a solid financial sheet, with just 6% debt to equity and 45% cash and short-term investments.
19% Higher Valuation Than Its Spot Price
Our valuation puts Activision Blizzard's share price at $92, which is 19% higher than its spot price of $77. And as the S&P 500 index is up 8% this year, ATVI stock has underperformed the wider indexes by falling 10% this month and not growing at all year to far.
ATVI stock is selling at 19x the 2023 profits projection of $3.95, which is lower than the average multiple of 23 over the last three years, suggesting that there is opportunity for further growth. The recent drop in ATVI stock price, in our opinion, represents a good purchasing opportunity for investors looking for long-term growth.
Even if ATVI stock still has space to expand, it is instructive to see how similarly situated companies compare in terms of key performance indicators. Peer Comparisons is a great place to get industry-specific comparisons of firms.
In addition, the Covid-19 problem has resulted in a number of price gaps that provide promising trading possibilities. Take-Two Interactive's stock price, in comparison to Fair Issac's, is quite counterintuitive.
After almost a year of nasty-tempered debates, there is still every possibility it might go through, despite the fact that everyone involved has come out of it looking awful.
Considering the gaming industry, the situation is much worse than it looks, but you do not need to be an acquisition lawyer to realise that Microsoft will likely have their way in the end.
Since most gamers are not interested in the inner workings of the industry, it is unlikely that the acquisitions will have any immediate impact on them. But what regular people will have noticed over the past year is that Microsoft and Sony have essentially stopped releasing new games and making announcements about new games.
Although they would deny it, it is clear that they are trying to avoid saying or doing anything that could lend credence to the claims made against them. For example, Microsoft has pointed to the success of The Last of Us TV show as evidence that Sony, not them, holds a monopoly.
The Competition Appeal Tribunal takes nine months or more to process appeals, and that is for “straightforward” cases, so this continuous timidity might go for a very long time.
Microsoft had a summer showcase scheduled for June, but it is likely being immediately rethought because of the Activision Blizzard merger. If Microsoft were to make a bunch of huge game announcements right now, it would just show to Sony that they do not need to purchase Activision Blizzard, which is the last thing they want to hear.