MSFT Stock: How Buying Activision Blizzard Helps Microsoft Stock
Microsoft (NASDAQ:MSFT) had a very eventful start to 2022. Less than three weeks into 2022, the announcement of a blockbuster deal has been announced, the largest ever. A week later, the company released its results for the second quarter of fiscal 2022. In turn, the company beat analysts’ forecasts for revenue and profit. Meanwhile, PC sales are skyrocketing, which means more copies of Windows are being sold. Additionally, Microsoft’s Xbox Series X game console is still selling out as soon as stores receive delivery. Despite all of this, however, MSFT stock is down around 11% year-to-date (YTD).
The last time we saw such a protracted pullback for MSFT stocks was in early 2020. Stocks skidded for five weeks starting in February of that year. By the time the market crashed in mid-March, Microsoft shareholders had seen their investment lose more than 25% of its value from its highs.
The current situation isn’t nearly as bad though, with MSFT stock around 13% below its November 2021 level. concentrate on just one: its acquisition of ActivisionBlizzard (NASDAQ:ATVI).
Details of the Activision Blizzard acquisition
On January 18, Microsoft announced plans to buy Activision Blizzard. The all-cash deal was valued at $68.7 billion. It is expected to close in 2023.
In turn, MSFT stock saw a very modest rise the day after the deal was announced.
What does Microsoft get by buying Activision Blizzard?
Let’s face it: $68.7 billion is a huge acquisition. Prior to this deal, Microsoft’s previous largest purchase had been LinkedInwhen Microsoft paid $26.2 billion for the professional networking service in 2016.
However, Microsoft is getting a lot for its money from Activision Blizzard.
The game company owns massive video game franchises, including Call of Duty, Monitoring, World of Warcraft and candy Crush. Its games are popular online, on PC, game consoles and smartphones. It has 400 million monthly active players spread across 190 countries.
As I wrote a few weeks ago, Microsoft is playing the long game with this purchase. It will earn immediate revenue streams from sales of popular Activision Blizzard games such as World of Warcraft and Call of Duty. However, Microsoft is betting the deal will also pay off with exclusives that generate more Xbox revenue. It also gives Microsoft a much stronger position in the metaverse. It is a business already valued at nearly $22 billion in 2020 and expected to generate a CAGR of 41.7% through 2030.
Therefore, this mobile games market is particularly interesting because it is an area where Microsoft has little presence. Activision Blizzard says only one of its smartphone titles – Call of duty mobile — generated more than $1 billion in consumer spending in 2021. That’s not a big change, it’s the kind of revenue that could drive MSFT stocks forward.
Moreover, it is also an opportunity for Microsoft to gain visibility on smartphones in general. With no mobile operating system, Windows Phones a (bad) memory, and Cortana for iOS and Android closed, Microsoft had been all but shut out of the smartphone space. So it’s a big market for a company of Microsoft’s stature that has been shut out.
Conclusion on MSFT shares
Collectively, Microsoft’s acquisition of Activision Blizzard isn’t a sure thing. This could getting derailed by regulators concerned about Microsoft’s growing power in the video game industry.
However, I think the agreement is another good reason to consider this portfolio binder A “B” rated stock for your own portfolio. Add the Activision Blizzard deal — with all of its likely perks — to other reasons to love MSFT stocks. With its Azure cloud service, Office subscription revenue, Windows licensing, Xbox sales, Bing search revenue, Surface device revenue, the picture is quite compelling.
It is therefore difficult to say with certainty in which direction the MSFT action will go in the near future. There are too many macro variables like inflation at play. That being said, I think it’s safe to assume that even if this pullback continues for a while, the long-term trajectory for MSFT stock is a return to growth.
As of the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.
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