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What Microsoft's Acquisition of Activision Blizzard Means For Its Gaming Future

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To bolster their stance in the video game industry across all platforms, Microsoft (MSFT - Free Report) acquired Activision Blizzard (ATVI - Free Report) for $68.7 billion dollars back in January. Activision Blizzard is a leader in video game development and an interactive entertainment content publisher.
 
Activision and Blizzard merged in 2008 and currently operate five business units: Activision Publishing, Blizzard Entertainment, Major League Gaming, King, and Activision Blizzard Studios. Activision and Blizzard merged in 2008.
 
The deal was the biggest acquisition ever within the gaming industry and is expected to accelerate growth in Microsoft’s gaming business. Let’s take a closer look into how MSFT’s acquisition of Activision Blizzard can bolster its position within the gaming industry.
 
Pre-Acquisition
MSFT had a long-standing business relationship throughout the years with Activision Blizzard prior to the acquisition. MSFT published ATVI’s products on the Xbox gaming platform and had commercial arrangements relating to the licensing of Activision Blizzard’s products.
 
Throughout the years in the gaming community, many speculated on Activision Blizzard’s future. Some believed that ATVI’s leading franchises had declined significantly and needed a revamp.
 
Mobile Gaming
Mobile gaming has seen extreme growth within the last few years and quickly became the biggest segment in gaming. It is estimated that more than 90% of all active video game players download and play mobile games. Microsoft wants to significantly expand its footprint in this aspect of the gaming business.
 
Activision has been in the mobile gaming arena for years now ever since their acquisition of King Digital Entertainment, or King, in February 2016.
 
King is a leading developer for the mobile gaming industry with a library that includes over 200 games. The most recognizable names in this library include Candy Crush, Pet Rescue, Bubble Witch, and others. King was responsible for $2.58 billion in net-revenue, or roughly 30% of ATVI’s revenue, in fiscal 2021. Net-revenue for King has increased each year since 2019.
 
ATVI’s established mobile gaming business brings enormous opportunity and upside for Microsoft’s future mobile gaming plans. Paired with the rate at which mobile gaming is growing, it is easy to see how Microsoft stands to benefit in this area. 
 
Console Gaming
Microsoft has been extremely successful in console gaming, but wants to expand much more on this platform. Two of the biggest console titles that they currently own are Halo and Minecraft. Halo is MSFT’s flagship title and Minecraft is the best-selling game of all time.
 
Activision Blizzard is heavily involved in console gaming and has some of the most respected console franchises of all time. Activision’s biggest titles are Call of Duty, Spyro, Crash Bandicoot, and Tony Hawk. This line of business was responsible for $3.48 billion in net-revenue, approximately 40% of ATVI’s revenue in fiscal 2021. 
 
Blizzard’s library includes popular names such as Diablo, World of Warcraft, Overwatch, and Starcraft. Blizzard’s net-revenue was $1.83 billion in fiscal 2021, representing roughly 20% of ATVI’s revenue.
 
Adding these highly regarded console names to MSFT’s library will make them a juggernaut within console gaming for many years to come.
 
Recurring Revenue
Microsoft is planning to publish all Activision Blizzard games onto their Xbox Game Pass, a service that has been widely accepted by gamers. Xbox’s Game Pass allows gamers unlimited access to a library of games for a flat-rate of $9.99 each month and is the first of its kind.
 
Xbox’s Game Pass subscriber count surpassed 25 million in January 2022, and Activision Blizzard titles currently have around 400 million monthly active players. Providing easier access to the most iconic gaming franchises in history at a cheap price will significantly propel Microsoft’s growth within console gaming. 
 
Microsoft has completely innovated and shocked the gaming world with its signature Game Pass, and shares stand to reap the benefits of this acquisition. 
Acquisition Expectations
Gaming is one of the fastest growing industries and MSFT understandably wants to take advantage. Now, with the ability to capitalize on ATVI’s assets, Microsoft will have nearly endless opportunities to explore. Microsoft believes acquiring Activision Blizzard will secure them a top spot within the gaming industry and rapidly expand its gaming business. 
 
Investors thought highly of the acquisition as well; ATVI rose nearly 25% in value the day after the acquisition was announced. 
 
MSFT will become the world’s third-largest gaming company by revenue once the transaction closes in fiscal 2023 and will have 30 internal game developing studios. MSFT is currently a Zacks Rank #3 (Hold). 

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