Microsoft-Activision merger: I think this deal closes, analyst says

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Call of duty maker activision blizzard posted a revenue beat for its latest quarter but fell short on the bottom line as the industry faces a slowdown joining us to discuss is web bush managing director of equity research michael pachter michael great to have you on the program this morning uh again the earnings hitting the tape i guess no surprise that in the

Reopening of the economy maybe fewer people are playing video games but what do you see from the companies earning support that tells you where you expect to see the stock go in the future you know i actually think uh that people are playing games uh probably about the same level as a year ago with the exception perhaps of you know children focused companies

Like roblox um in fact you know we saw that activision’s king division which is their mobile games candy crush uh was up six percent year over year in the in-app purchase part of the business and even more encouraging their advertising part of that business is up over 20 percent so in fact people are engaged in activision’s case you know they really benefited in

The first half of 2021 from a great call of duty game that came out in the fall of 2020 and this past year the call of duty game just wasn’t as good and uh at the same time the company launched uh a free-to-play game called war zone call of duty war zone that’s kind of distracted people so the there’s more people engaged i think than than the numbers suggest it’s

Just that the company had difficult comparisons and and suffered because of the record call of duty catalog sales a year ago yeah michael good to talk to you again let’s talk about your price target on this stock 95 is what we’re looking at how much of this um factors in this acquisition from microsoft do you see that as a tailwind in the long term once it gets

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Approved or a headwind all of it incorporates the acquisition by microsoft and i can confidently say that satya nadella is not no elon musk so he’s not going to renege on the deal or look for a lower price i can confidently state that the fdc has no legal basis to challenge this they might try and actually surprise us on friday when they sued to block facebook’s

Acquisition of a tiny little company called within so lena khan is showing she hates big tech uh but the the basis for a challenge here would be that you know if microsoft were to complete his acquisition of of activision that they would pull games off of sony’s playstation platform and microsoft has already blogged and tweeted we won’t do that we have contracts

We’ll honor them what the ftc will likely do and should do is seek an agreement with microsoft and enter into a consent decree not block the merger not sue to block the merger and the consent decree will say you know we’re not going to raise game prices or the cost of the console and we’re absolutely going to continue to support playstation with activision games

If they get that this deal sails through so watch october because that’s nine months after the deal that’s kind of when the ftc has to fish or cut bait and if they don’t sue by the end of october watch microsoft announce that they’re going to close the deal by year end and then we’ll see what the ftc does but i think this deal closes i think it closes no later

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Than january 15th and i think the price is 95 bucks hence my price target so uh just to kind of go back i guess then to the business model if it’s smooth sailing with that with that acquisition there what is the future strategy for this company that’s really going to help them uh in the long run when you talk about the competitive landscape here because it seems

To me that there’s been this big shift to kind of the free to play model here you mentioned warzone that’s one of those games fall guys an enormously popular game especially among kids among myself as well but these are free games that you’re not paying for but the idea is i guess to get the revenue stream from the add-ons and the kind of customs that you can get

In that game so microsoft had a vision years ago that i thought was stupid um that they were gonna you know come up with a subscription service and everybody would pay them for the right to play games and they just didn’t have very many games then they went on a buying spree and they bought six independent studios the biggest of which is obsidian they’re very

Very good but then they bought bethesda which is a giant studio and now they’re buying activision when they’re done they are the fourth major game publisher you know in the us so so they’re going to be giant and they’re going to be in a position to actually support their subscription their future vision is let’s eliminate the console let’s use the cloud and let’s

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Deliver games to any any screen that you have and that potential market is three and a half billion people so i don’t think they’ll get that many subscribers but will they go from 25 million to 100 million yes so you know much like disney bought fox to support disney plus they didn’t pull the fox movies out of theaters they’re just putting the catalog eventually

Onto disney plus instead of hbo and that’s a very very smart strategy so that’s where this is headed more free to play activision’s great at free to play more than half their revenues come from free to play so it’s a big big opportunity for microsoft to get good at it michael really quickly is that is that a painting of yourself i was wondering the same thing it

Is my my good friend steve felix did this for my birthday and so if you want a portrait please let me know and i’ll get you steve’s contact he does rock stars he does rock stars almost exclusively but he did me as a favorite well i was yeah i mean kiko and i want one of the two of us maybe in the backdrop that way we can have another one i will be happy to put you

In contact with steve he’s awesome have your people reach out to my people web bush managing director of equity research michael pachter always a pleasure to have you on the program thanks so much

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Microsoft-Activision merger: ‘I think this deal closes,’ analyst says By Yahoo Finance