Microsoft’s Activision Deal Gets US Approval: Here’s What Investors Should Know

July 12, 2023

The gaming ambitions of Microsoft Corporation (NASDAQ: MSFT) took another step forward after a US judge approved its planned US$69 billion deal to buy video game maker Activision Blizzard Inc. (NASDAQ: ATVI).

This deal fuels Microsoft’s gaming ambitions and opens an unprecedented investment opportunity.

Here is why this could be a golden moment to buy Microsoft shares.

The gaming market’s potential

The global gaming market, currently worth billions, has transformed into a large yet fragmented landscape.

This fragmentation presents a unique opportunity for industry titans to consolidate and capture significant market share.

With its ambitious gaming strategy and a keen eye for profitable acquisitions, Microsoft is well-positioned to do so.

Microsoft’s gaming strategy

Microsoft has long shown an unwavering commitment to dominating the gaming sector, a market that is predicted to be worth over $200 billion by 2023.

With its successful Xbox franchise, the advent of the innovative Game Pass, and now the Activision acquisition, Microsoft is taking giant strides towards achieving this aim.

Microsoft is betting that owning the best content is the key to winning the gaming wars. The Activision deal’s green light cements Microsoft’s gaming industry position.

Activision, a major player in the industry, brings in popular franchises like Call of Duty, World of Warcraft, and Candy Crush, which align with Microsoft’s vision to create an immersive platform brimming with top-tier gaming experiences.

A game-changing acquisition

The Microsoft-Activision deal, worth nearly $69 billion, is the most significant acquisition in the video game industry’s history.

This move not only increases Microsoft’s capabilities to deliver new gaming experiences but also amplifies its market reach and monetisation potential.

By bringing Activision’s successful franchises under the Microsoft umbrella, the tech giant can leverage synergies between Activision’s games and Microsoft’s technological infrastructure, thereby enhancing the quality of gaming experiences for millions of users.

Game Pass: The future revenue generator

Microsoft’s Game Pass is a notable aspect of its forward-looking strategy. This innovative service, offering access to a vast library of games for a monthly fee, has the potential to become a very profitable part of the company over time.

In recent years, Microsoft has funnelled substantial financial resources into its subscription service, Game Pass, mirroring a broader industry trend where content reigns supreme.

This pattern is particularly evident in the fiercely-competitive video streaming landscape.

Netflix Inc (NASDAQ: NFLX), the pioneer in this realm, initially thrived by licensing third-party content.

However, as these third parties recognised the value of their content and launched their own streaming services, Netflix was compelled to invest heavily in its original programming.

This scenario is increasingly resonating within the world of video gaming.

For most players, the decision to purchase a gaming console such as Xbox or PlayStation isn’t predicated on hardware preference but rather the access it provides to their favourite gaming content.

This likely explains the ongoing battle between gaming companies to secure exclusive rights to high-profile game franchises.

For instance, the Mario franchise, one of the highest-grossing gaming franchises in history, will probably never feature on any platform other than Nintendo, underscoring the pivotal role that exclusive content plays in shaping consumer choices.

The integration of Activision’s franchises into the Game Pass library could increase its appeal, driving more subscriptions and, by extension, revenues.

The upside for investors

The green light for the Activision deal comes with several benefits for Microsoft and by extension, its investors.

Firstly, it could lead to substantial revenue growth for Microsoft in the long run as it taps into Activision’s massive player base.

Secondly, it will potentially lead to cross-promotion opportunities with Microsoft’s other products, expanding its ecosystem and increasing user engagement.

Furthermore, Microsoft’s strong financials, innovative strategy, and growing presence in the gaming market make its stock a potentially rewarding investment.

As it stands, Microsoft shares already offer an attractive dividend yield, and this deal could propel further growth.

While investing always carries risks, and nothing is guaranteed, the positive aspects of this deal hint towards a promising future for Microsoft’s gaming division.

This could be the perfect time for the savvy investor to add Microsoft to their portfolio.

In conclusion, Microsoft’s acquisition of Activision, receiving the green light, is an industry-defining moment.

It bolsters the tech giant’s gaming strategy, providing investors with a unique opportunity to ride the wave of this sector’s expansion.

Whether you’re a seasoned investor or a novice, Microsoft’s ambitious gaming plans may just be the opportunity to knock on your door.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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