The Ratings Game: Microsoft could have just kicked off a Big Tech gold rush, which helps videogame stocks but maybe not gamers


Microsoft Corp.’s agreement to buy Activision Blizzard Inc. would be the largest tech acquisition ever, and the chance it could prompt other Big Tech names to make their own acquisitions sent videogame stocks higher in response.

The result could be great for videogame companies’ stocks, which saw a boom in 2020 that cooled in 2021 on expectations that the pandemic-influenced growth was beginning to wane. Those who play the videogames may see it differently, however, as the companies paying big money could seek to keep widely popular titles exclusive to their ecosystems, such as Microsoft potentially making “Call of Duty” only playable on the Xbox and shutting out owners of Sony’s PlayStation, a possibility that neither company has broached yet.

Read: The pandemic boom in videogames is expected to disappear in 2022

Microsoft’s MSFT, -2.43% $68.7 billion cash deal to buy Activision Blizzard ATVI, +25.88% announced Tuesday follows another big deal in the sector last week, Take-Two Interactive Inc. TTWO, +0.96% purchasing Zynga Inc. ZNGA, +0.33%, and sent beleaguered videogame stocks higher.

Take-Two shares rose as much as 5% on Tuesday but only finished up 1% at $154.04, and Electronic Arts Inc. EA, +2.66% shares rallied as much as 9% to close only 2.7% higher at $133.91. Meanwhile, the S&P 500 index SPX, -1.84% fell 1.8%, the tech-heavy Nasdaq Composite Index COMP, -2.60% fell 2.6%, and the iShares Expanded Tech-Software Sector ETF IGV, -1.84% was down nearly 2%

Those stocks still have a way to go for a full recovery. Even with Activision Blizzard’s Tuesday price jump from the Microsoft deal, the stock is still trading less than the $92.85 it was selling for at the end of 2020, and the acquisition price amid concerns about the deal being approved by regulators amid antitrust scrutiny. Activision Blizzard shares finished up 26% at $82.31, giving the company a market cap of $64.11 billion, according to FactSet data.

Read: Activision CEO stands to reap nearly $400 million in Microsoft deal, and that may be just the start

Take-Two is still 26% off its $207.79 close at the end of 2020, and EA is 7% off its 2020 close of $143.60. Take-Two finished Tuesday with a market cap of $17.78 billion, while EA had a cap of $37.87 billion, according to FactSet.

Those relatively low prices for videogame stocks are prompting some analysts to opine that the Microsoft-Activision deal could spark a gold rush of other mega-media players to bolster their “metaverse” content with a videogame publisher acquisition of their own.

Of M&A deals, Jefferies analyst Andrew Uerkwitz said there is “likely more to come.”

“We believe the other large publishers are likely acquisition candidates,” Uerkwitz said. “We do not expect there will be an over-the-top bid on Activision. If large tech is serious about interactive entertainment, the next few months will surely answer those questions. We view Amazon & Sony as the most likely to be acquisitive.”

Read: Amazon videogame exec on the success of ‘New World’ and why everyone is chasing Roblox

Mizuho analyst Jordan Klein pointed in his note to a wider potential pool of big-name potential acquirees, while noting that Microsoft made a unique decision “to buy established content and subscribers vs a metaverse or gaming development platform designer.”

“Microsoft can now ACCELERATE the push of gaming towards metaverse in a way that Activision would never have been able to do as fast given all their internal issues,” Klein said.

Klein said Ubisoft Entertainment SA UBI, +3.61%, Take-Two, EA, and Sony Group Corp. SONY, -7.17% 6758, -12.79% “should see some form of valuation expansion in my view” as Walt Disney Co. DIS, +0.22%, Netflix Inc. NFLX, -2.83%, Inc. AMZN, -1.99%, Meta Platforms Inc. FB, -4.14%, and Apple Inc. AAPL, -1.89% “could look to make a move, and Disney or Apple make most sense,” Klein added. And while Take-Two is set to buy Zynga, Klein thinks “it would not stop a big player like Amazon, Apple, Disney in my view” from making a play for Take-Two.

Klein expects that Unity Software Inc. U, -4.48% and Roblox Corp. RBLX, -2.33% “will be viewed as the next key potential takeouts for metaverse plays,” and that Apple “would make sense to me for Unity.” Unity shares finished down 4.5% at $112.64 for a market cap of $32.22 billion, and Roblox finished down 2% at $77.21 for a market cap of $44.69 billion. Meanwhile, Apple shares finished down 1.9% at $169.80, giving the tech giant a market cap of $2.774 trillion.

On Tuesday, Ubisoft shares rallied 12% on the Euronext Paris exchange, while U.S. shares of Sony fell 7.2%, Disney shares rose 0.2%, Netflix shares declined 2.8%, Amazon was down 2%, and Meta shares fell 4.1%.

Stifel analyst Drew Crum said his initial reaction to the Microsoft deal was that “videogame stocks were oversold and this deal shines a positive light on the group.”

Microsoft’s decision to bolster its metaverse footprint with the deal “calls into question the implications for stand-alones including Electronic Arts and Take-Two, or even an incumbent such as Roblox,” Crum said. Given Microsoft’s bold move, the analyst questions whether those stand-alone companies “are technically and financially disadvantaged, if in fact the metaverse is the next frontier of interactive entertainment.”

While that setup could be good for the companies that make videogames, it may not be beneficial for those who play them. IDC Research Director of Gaming Lewis Ward said in emailed comments that while “the gaming world is on fire about” the Microsoft-Activision deal, he’s “less convinced it’s a great move for Activision Blizzard or for the broader games industry.”

“I don’t see why Activision Blizzard can’t come through this rough patch after an exec shake-up and get back to being a leading standard-bearer for successful indie, cross-platform developers and publishers,” Ward said.

He also brought up the possibility that Microsoft will make some of Activision’s biggest properties exclusive to its platforms, such as the Xbox. While executives spoke in a conference call Tuesday morning about expanding the reach of Activision’s games — “Our vision is for a river of entertainment, where the content and commerce flow freely, driving a renaissance across the entire industry to make games more inclusive and accessible to all,” Microsoft CEO Satya Nadella said — there are still concerns about the effects of such a large publisher with established and popular games going to a console maker.

Activision Blizzard has “done a lot of things right over the past two decades and I think gamers will ultimately lose out, especially [Sony’s] PS5 gamers, if the deal is approved and Activision Blizzard and Microsoft start monkeying around with exclusivity windows and pricing over the next few years,” Ward said.

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