Microsoft already has almost all the major features needed to deliver the metaverse platform.
Last night, gamers lamented throughout the night that Microsoft's all-cash acquisition of Activision Blizzard was "trenchless." Some people rejoice that the beloved game "has been saved", some people joke that "Hearthstone will replace Spider Solitaire pre-installed Windows", and some people reverie, "The top equipment in World of Warcraft will soon be made into NFTs".
On January 18, EST, Microsoft (MSFT.O) announced that it will acquire Activision Blizzard (ATVI.O) for $95 per share in full cash, including Activision Blizzard's net cash, with a transaction valued at $68.7 billion. Barron's noted that the acquisition was Microsoft's biggest deal ever. Activision Blizzard's game IPs include Call of Duty, World of Warcraft, and Candy Crush.
Affected by this news, as of the close of trading on January 18, Activision Blizzard shares rose 25.88%, with a total market value of $64.11 billion. Microsoft shares were flat, down 2.43 percent, with a total market capitalization of $2.27 trillion.
Stock price performance
Note: Data as of January 18 at 4 p.m. EST
Source: FactSet
Microsoft said the deal will accelerate its business growth in the mobile, PC, console and cloud gaming sectors, making it the world's third-largest gaming company by revenue, behind Tencent (0700. HK) and Sony (SONY.N).
On the same day, Sony shares fell 7.17 percent, showing the market's concerns. Activision Blizzard's rival Electronic Arts Inc. (EA. O) closed up 2.66 percent and Take-Two Interactive Software Inc. (TTWO.O) shares rose 0.96 percent; the latter recently announced the acquisition of game developer Zynga Inc. (ZNGA. O), Xingjia closed up 0.34% on Tuesday. Video game software development company Unity Software (U.N), which is seen as a metaversity concept stock, and Online game creation platform Roblox (RBLX.N), fell 4.48 percent and 2.33 percent, respectively.
On January 19, the A-share game and meta-universe concept plate rose, Xinghui Entertainment and Xunyou Technology rose by 20%, Xunyou Technology, Glacier Network, Shengtian Network, Tom Cat, etc. rose in the front; 37 Interactive Entertainment, Perfect World and so on followed suit. In addition, due to the announcement of the acceptance list of the second batch of members of the Meta-Universe Industry Committee of the China Mobile Communications Federation, Deyi Cultural Creation and Digital Source Technology have risen and fallen. Some analysts believe that Blizzard's high-priced acquisition may trigger a revaluation of the value of game companies with rich IP resources. Huatai Securities commented that global giants are continuing to absorb high-quality assets and the layout of the meta-universe, and scarce boutique game content developers are expected to play the role of the cornerstone of the construction of the meta-universe.
At the time of Microsoft's acquisition of Activision Blizzard, the domestic media reported that "ByteDance will lay off the investment business as a whole". ByteDance responded on the afternoon of the 19th that the company took stock of and analyzed the business at the beginning of the year, decided to strengthen business focus, reduce investment with low synergy, disperse the staff of the strategic investment department into various business lines, and strengthen the cooperation between the strategic research function and the business. Planning discussions are also underway for the business and teams involved.
The background of this major change is another rumor: regulators may begin to require "the listing and investment and financing activities of enterprises with more than 100 million platform users or more than 10 billion yuan in revenue last year" for pre-approval.
So far, Meta, Microsoft, Tencent, ByteDance, etc. have been considered to be the main candidates for the leadership of the meta-universe. If the above rumored policy is landed, it may affect the relevant deployment of Tencent and Byte.
The Barron's report pointed out that Microsoft's acquisition of Activision Blizzard also needs to be approved by Chinese regulators, which may change. In addition, in the United States, there are also people who "do not want Microsoft to become stronger."
To be sure, there are many big tech companies that want to be winners in the metaverse, but the story is just beginning.
Lying flat for a few years of Activision Blizzard is going to sit up?
Microsoft's announcement shows that Activision Blizzard CEO Bobby Kotick will continue to serve as the company's CEO, and after the completion of the transaction, Activision Blizzard business will report to Phil Spencer, head of Microsoft's gaming business. But people familiar with the matter told The Wall Street Journal that the two companies have reached a consensus that Bobby Kotick will leave after the deal is completed.
According to public information, Bobby Kotick acquired the poorly run Medianic in 1991 and restructured it on a large scale, including changing the company's name to Activision. Around 2006, Bobby Kotick offered to acquire Two game studios owned by Vivendi SA, a game studio owned by Blizzard Entertainment, Inc., the developer of World of Warcraft, which Bobby Kotick hopes to use World of Warcraft to ride on the power of massively multiplayer online games (MMOs).
In addition to "World of Warcraft", Blizzard Entertainment also has IPs such as "StarCraft", "Diablo", "Overwatch" and so on, accompanied by the growth of many post-80s and post-90s. The merger proposal was approved in late 2007, and the new company was named Activision Blizzard, but the two companies and their studios still develop, produce and distribute game products under their respective names. In 2015, Activision Blizzard acquired the game company King, the developer of "Candy Legend", further expanding the mobile game market and forming a state of independent operation of activision, Blizzard and King.
When the news of Microsoft's purchase of Activision Blizzard came out, many gamers said on social networks that they "witnessed history", and some users joked that "God closed a door for Blizzard and opened a Windows for it".
Although Activision Blizzard's game IP has created a number of game and entertainment sales records around the world, with the advent of the mobile and free-to-use trend, these classic IPps have also been deeply imprisoned in performance, making their stock prices fall into a downturn after September 2018. It was not until the outbreak of the new crown epidemic and the growth of online game demand that the demand for online games was blocked by the epidemic that the stock price rebounded.
At the same time, Activision Blizzard expanded the operation mode of classic IP, and the performance of stagnant growth gradually returned to the track. However, the industry generally believes that the loss of players is the fate that game companies cannot escape, and they need to constantly innovate to maintain their vitality. A game streamer told Barron's Chinese that Activision Blizzard has not launched a particularly eye-catching new game IP in the past few years, and the practice of "nibbling on the old" is likely to be unsustainable; activision Blizzard after the acquisition should continue to increase its influence on players in the esports market. Including StarCraft 2, Warcraft, Overwatch and other relatively mature competitive events, Hearthstone has also become one of the official projects of the 2022 Hangzhou Asian Games e-sports competition. Businesswire expects the global esports market to grow from $1.38 billion in 2021 to $11.16 billion in 2031.
Microsoft also wants to be the big winner of the metaverse
Microsoft CEO Satya Nadella said at a jan. 18 news conference: "Gaming is the most dynamic and exciting category of all entertainment platforms today and will play a key role in the development of metaverse platforms. ”
Microsoft Gaming CEO Phil Spencer said on an investor conference call that the acquisition of Activision Blizzard will "strengthen the company's layout of the consumer metacosm", adding: "Our vision for metacosmity will be based on the global interactive community created by strong franchises, of which mobile games are the largest game category, and this is an area we have never been involved in before." ”
Kirk Materne, an analyst at Evercore ISI, said: "We believe that gaming will be one of the key drivers of Microsoft's next-generation growth, and the addition of Activision Blizzard has pushed Microsoft's gaming strategy to the forefront as it has the cloud infrastructure needed to support the new gaming paradigm." ”
Microsoft plans to launch Activision Blizzard's game in its Game Pass. Currently, Game Pass has more than 25 million subscribers, and Microsoft hopes Activision Blizzard's nearly 400 million monthly active players will be able to increase its subscription number. According to the Wall Street Journal, after the acquisition of Activision Blizzard, Microsoft said it will have 30 in-house game development projects.
The Wall Street Journal believes the acquisition will mark a resurgence of the business landscape through a series of deal moves, and the world's second-most valuable company is rising to become a powerhouse and gaming giant in commercial computing.
Rosenblatt Securities analyst Blair Abernathy believes the deal "significantly strengthens Microsoft" and is bullish on franchise acquisitions of major IPs such as Call of Duty, as well as the expansion of Microsoft's mobile gaming business. He wrote that by 2030, the number of players in the more than $200 billion global gaming market is expected to grow from about 3 billion today to 4.5 billion.
Moody's analyst Richard Lane affirmed the acquisition as "strategically sound," noting that Microsoft has $137 billion in cash and has the potential to generate $50 billion in free cash flow this fiscal year. He said the acquisition will "further drive Microsoft's strategy to expand usage and deepen engagement by investing in content, communities and cloud services." ”
In a research report last week, Bernstein analyst Mark Moerdler argued that among the software companies that benefit from the development of the metacosm, Microsoft is "the most likely position to be the big winner." He noted that Microsoft will not only participate in the metacosm in the field of game software, but also a significant player in hardware and key underlying infrastructure construction, including the cloud.
At the same time, Microsoft has been growing its cloud business. Mark Moerdler believes that although the cloud business is not the most important growth point for Microsoft at present, it may have driving significance for many business areas.
Mark Moerdler argues that Microsoft, which includes azure public cloud service platform, smart glasses product HoloLens, developer platform Microsoft Graph, game services Game Pass and xCloud, collaboration and communications platform Microsoft Mesh, and business social platform LinkedIn, already has "almost all the major capabilities needed to deliver a meta-universe platform."
"Some people don't want Microsoft to get stronger"
But the Barron's report also notes that given the possible antitrust scrutiny, Wall Street M&A arbitrageurs believe there is less than a 60 percent chance of the acquisition being completed.
Activision Blizzard rose 25.88 percent on Tuesday, but closed at $82.31 significantly below Microsoft's all-cash offer of $95 per share. If Wall Street is confident in the deal, Activision Blizzard's share price could be close to $90.
One arbitrageur told Barron's: "Some people just don't want Microsoft to get stronger. ”
Although recently Microsoft has not been as close to its large tech peers Alphabet (GOOGL.O), Amazon (Amazon.com, AMZN. O), Facebook (Meta Platforms, FB. o) and Apple (Apple, AAPL. O), but it's still a giant. As of Jan. 18, Microsoft's total market capitalization of $2.27 trillion ranked second in the world after Apple.
Barron's magazine believes that Microsoft's acquisition of Activision Blizzard is a key test for the Biden administration's stance on large mergers and acquisitions. Given the antitrust environment of the U.S. authorities, it is not surprising that Wall Street has taken a cautious approach. Officials from the Federal Trade Commission and the Justice Department did not comment on the deal at a joint news conference on Jan. 18.
Barron's January 18 report pointed out that Microsoft's acquisition of Activision Blizzard also needs to be approved by Chinese regulators, which may change.
On January 19, it was reported that ByteDance would lay off its investment business as a whole; and the regulatory authorities may begin to require "the listing and investment and financing activities of enterprises with more than 100 million platform users or more than 10 billion yuan in revenue last year" for preliminary approval. This scope definition is bound to have an impact on Companies such as Tencent and ByteDance.
Last March, ByteDance acquired Mu Hitomi Technology, a video game developer whose main products include Magic Rush, Mobile Legends: Bang Bang and Mobile Legends: Adventure. According to incomplete statistics, ByteDance has more than 20 companies related to the game business.
One of the early layout strategies of the Internet head enterprises in the metaverse was to expand the territory through acquisitions and mergers and acquisitions; and the game, as an important entrance to the metaverse, became a must for these companies. As the regulatory environment complicates, byteDance's adjustment to the investment sector may send a message that the technology giants may have more difficult mergers and acquisitions in the future.
Wedbush analyst Dan Ives wrote in a research note on the deal: "From a regulatory perspective, Microsoft is not subject to the same degree of scrutiny compared to other tech giants (Amazon, Apple, Facebook, Google), which ultimately gives Nadella a window where consumers can make big bets, while other tech giants are not able to pursue such assets because of regulation." ”
Another potential risk affecting the success of the deal is that Activision Blizzard has been under intense pressure from shareholders, business partners and others to make allegations of workplace misconduct. The Wall Street Journal reported that in July 2021, the California regulator filed a lawsuit against Activision Blizzard, accusing the company of sexual harassment and gender pay discrepancies among the company's approximately 10,000 employees.
Microsoft said the deal has been approved by the boards of directors of both sides and is expected to close by July 2023. Dan Ives believes that despite potential regulatory hurdles, the largest M&A deal in tech history will eventually close.
Text | Barron's Chinese edition contributor Lin Yidan
Edit | Su Hao
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