The author | Snow Night Maple Scales
After a series of scandals and employee strikes, the future of Activision Blizzard finally has a result. Yesterday evening, Xbox released a statement on its official website welcoming Activision Blizzard to the Xbox family. Activision Blizzard was sold for $68.7 billion, and Microsoft chose to pay in cash. After the transaction is completed, Microsoft will become the world's third-largest game company after Tencent and Sony.
After this explosive news appeared, domestic and foreign public opinion was in an uproar. Most of the domestic player discussions focused on the future of Blizzard's various game projects or meta-universe-related topics, while a foreign country set off a discussion about the pricing of game companies and the re-division of industry territory.
Whatever the sound, the convergence of Microsoft and Activision Blizzard means that both companies have entered a whole new phase. Microsoft has assembled an IP lineup that is enough to compete with any manufacturer, and has also straightened out its own game department, and Phil Spencer has been promoted from the head of the Xbox division to the CEO of Microsoft Games. Activision Blizzard has the potential to get rid of its bad bosses and get more financial and technical support to restore its former glory. In contrast, the metaverse has never been their primary concern.
$68.7 billion, what is the concept of this price?
According to the statistics given by Macrotrends, as of June 30, 2021, Microsoft had only $56 billion in cash flow, and a transaction to acquire Activision Blizzard almost hollowed out all of Microsoft's cash flow. Nintendo, one of the world's three major OEMs, has a market capitalization of only $61.452 billion, which is far below the transaction price of this acquisition.
We can even pull the perspective a little farther. According to the "2021 China Game Industry Report" released by the Game Work Committee, the actual sales revenue of China's game market reached 296.513 billion yuan last year, which was converted into about 45.6 billion US dollars. In other words, Microsoft's acquisition of Activision Blizzard cost the Chinese game industry almost a year and a half of output value.
For such a high-premium acquisition, the attitude of the outside world is directly fed back to the stock price.
After Microsoft announced its acquisition of Activision Blizzard yesterday, Activision Blizzard's stock price rose 25.88% to $82.31. On the contrary, Microsoft's own stock price has fallen slightly, falling by 2.43%. It is worth mentioning that the Nasdaq index fell as a whole yesterday, down as much as 9.7%, and Microsoft's stock price is obviously not oversold.
Throughout the previous large acquisitions, the acquirer's stock price has fluctuated, but the rise and fall are slightly different. Taking a recent transaction as an example, on January 10, the well-known American game company Take-Two reached an acquisition agreement with Zynga, and Take-Two acquired Zynga for more than $11 billion, and the transaction will be completed in the first half of this year.
After the deal went public, Zynga's stock price soared by more than 40%, while the acquirer Take Two's share price plunged 13.13%.
If you put these two acquisitions together, you will find that there are many similarities between the two. Activision Blizzard and Zynga sell at different levels of premium. Microsoft's acquisition price is more than 30% premium to Activision Blizzard's market capitalization, while Take Two's acquisition of Zynga is a premium of up to 60%.
However, in the case of large acquisitions in the game field, it is not entirely possible that the acquirer's stock price will be frustrated. Microsoft, also, after acquiring Bethesda's parent company ZeniMax for $7.5 billion that year, Microsoft's stock price once briefly rose by 1%.
Not just Bethesda, in 2016, Tencent set up a special consortium to acquire Finnish mobile game developer SuperCell for $8.6 billion, setting a record for a game acquisition at the time. But at the time, Tencent's Hong Kong stock price did not fall, but rose by 4.52%.
Interestingly, 3 years later, when Tencent faced the version number crisis, in order to increase the company's stock price, it chose to further increase its stake in the relevant consortium, and incorporated the performance of SuperCell into Tencent's financial report, which also successfully helped Tencent stabilize the stock price at that time.
A number of analysts also expressed their views on the deal. Daniel Ives, an analyst at the well-known research organization Wedbush, believes that the core reason for Microsoft's move is that since November last year, Activision Blizzard has been affected by the company's corporate culture scandal, and the stock price has been greatly impacted. This opens up to potential acquirers, including Microsoft.
However, some analysts fear that the recent antitrust in the United States will cause the deal to fail. After Microsoft announced the merger, the U.S. Department of Justice and the Federal Trade Commission said that in order to review the proposed merger, they would re-examine the relevant guidelines for evaluating the government.
Microsoft understands this concern, so whether it is the official documentation or the announcement video of Phil Spencer, they have repeatedly said that even if Microsoft acquires Activision Blizzard, it is only the third largest game manufacturer in the world, ranking below Tencent and Sony.
After the acquisition of Activision Blizzard, Microsoft's stock price did not rise, in fact, the capital market is not optimistic about this acquisition. This acquisition is an irrational operation in the eyes of the capital market. At the same time, large acquisitions require huge cash flows from the acquirer, which is also an important reason for the decline in Microsoft's stock price.
Nadella mentioned in the relevant announcement that activision Blizzard's acquisition is to force the meta-universe, and this passage has also been reprinted by the domestic mainstream media. But judging from Microsoft's past series of actions, they have not further explored in the VR/AR field, and in addition to LinkedIn, Microsoft is still a relatively weak party in the social field. Therefore, the addition of Activision Blizzard is still an IP content-oriented investment, and meta-universe is obviously the last thing to go back to consider.
Xbox continues to exert its power on the subscription system to break the Sony blockade
So, is the outside world completely not optimistic about this transaction? Not really.
As mentioned earlier, Microsoft's acquisition behavior in the eyes of the capital market is irrational, but if the specific valuation is carried out, it may lead to a completely different result.
MiZhu, a strategic investment manager of a giant, told the prophet that although Microsoft's acquisition is 30% premium, Activision Blizzard has a large number of game IP in its hands, all of which are high-quality assets. These high-quality assets were eventually sold at a seemingly fair price, but in fact, they were a big bargain for the acquirer.
Therefore, most analysts are still very optimistic about Microsoft's deal. Analyst Peter Trinity even believes that $68.7 billion is only 3% of Microsoft's market capitalization, and the deal will not prevent Microsoft from pursuing other opportunities.
Competitors' stock price performance is also an important barometer. During today's trading day, Sony's stock price fell 12.79%, and the market value evaporated by $20 billion, which is also due to Microsoft's acquisition of Activision Blizzard.
Looking back at several acquisitions, we find that Microsoft's strategy is actually very clear, that is, to re-bet on game subscriptions.
Along with the announcement of the acquisition, there was also a news that was ignored by many people. Microsoft's game subscription service, Xbox Game Pass, has surpassed 25 million users so far, an increase of 7 million compared to the 18 million users made public in January last year. That said, Microsoft's game subscription system has been an initial success.
Phil Spencer said in an interview that Microsoft's goal is to have a blockbuster land on XGP on its first day every month. If a third party alone is not enough to achieve this goal, then game support from first-party studios is particularly important.
Last year, Microsoft First Party contributed many first-party games such as Forza Motorsport: Horizon 5, Age of Empires 4, Halo: Infinity, and Microsoft Flight Simulator. This year, there are first-party masterpieces such as "RedFall" and "Starry Sky". After Activision Blizzard joined Microsoft's first-party studio, it obviously has a great enabling effect on XGP.
Not only that, whether it is Activision or Blizzard, there is a fixed player ecology in hand. These players are extremely hardcore and proficient in classical game genres, especially Blizzard's annual carnival event, which shows the cohesion of its fans, which is also very important to Microsoft.
Microsoft Group CEO Nadella said in this morning's conference call: "Gaming is one of the fastest growing of all forms of entertainment today, and the biggest problem in this industry is that there are often many differences in content, consumption and commercialization. Microsoft is facing extremely stiff competition, and some companies are just distributing games to get more revenue than we do. We need to innovate and invest more in content and have less restrictions on distribution. ”
Nadella's words are obviously pointing to Sony, the second in the industry.
Microsoft's rivalry with Sony has a long history. Before Microsoft acquired Bethesda, Sony had already negotiated with Bethesda about the time-limited exclusive use of the two games "Death Loop" and "Tokyo Ghost Line", not to mention many Japanese games. Microsoft's acquisition is also trying to break this blockade.
After Microsoft acquired Activision Blizzard, people were most concerned about whether the Call of Duty series would become a Microsoft exclusive game. Spencer has also repeatedly stated that he will not give up on players in the PS community, especially Call of Duty: Vanguard, which is also the first and third most downloaded games for PS throughout the year. But more players who buy Sony consoles are still skeptical, after all, Bethesda's "The Elder Scrolls 6" and "Fallout" new games have long been determined to be Xbox exclusive.
NetEase Blizzard is still unknown, and the huge domestic investment is about to stop
As a huge acquisition that shocked the world, the impact of Microsoft's acquisition of Activision Blizzard on the domestic game industry is far less than people imagine.
Stock price is still the most direct answer, after the opening of today's A-share market, there is basically no game stock surge, only a few game companies such as Perfect World rose slightly, and the same is true of Tencent and NetEase in Hong Kong stocks. Investor attitudes prove that historic acquisitions have nothing to do with China.
The most directly related to Activision Blizzard is naturally Blizzard's domestic business. Previously, NetEase was the main agent of Blizzard Entertainment in China, and after the acquisition of Microsoft, it is unknown whether this agency relationship will continue. The prophet once asked about NetEase's game, but ultimately did not get an answer.
In addition to the direct agency relationship, whether Microsoft's acquisition of Blizzard will set a price benchmark for Chinese manufacturers to sell or invest in the next year is also a concern of the industry, including whether A-share game companies will be revalued.
A person familiar with the domestic factory told the prophet that the acquisition will not affect the pricing of domestic companies. The reason is very simple, most medium-sized or even large companies, they are not short of money on hand, there is no business problems, naturally will not consider selling. Small studios have no bargaining power, even if the overall game market investment price is inflated, large manufacturers will choose to buy rationally.
In addition, there are not many companies of this size like Activision Blizzard in the world. Today TGA organizer Geoff Keighley made a list of game companies that have not yet been sold, and the most expensive EA companies are worth only $38 billion, half of the acquisition price of Activision Blizzard, and there are only 11 similar companies. Therefore, Microsoft's extravagance is more like an isolated case.
In addition, for domestic manufacturers, the main tone of 2022 is to tighten the monetary base, and many companies may withdraw. In the last month alone, we have seen the exit of Baidu games. With the further control of Internet investment, the field of game investment is naturally not exempt.
The hand-in-hand between Microsoft and Activision Blizzard gave people a glimpse of Microsoft's determination in the gaming space, while also understanding what "money ability" is. However, the test of players for Microsoft's subscription service is not over, and whether Microsoft can truly rely on Activision Blizzard's strong IP strength in the future to reverse the disadvantages in the game field in this generation is still worth people's continued expectations.
The disadvantage is still worth people's continued expectations.