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Microsoft (MSFT) Faces FTC Action to Block Activision Deal

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Microsoft’s (MSFT - Free Report) $75-billion acquisition of Activision Blizzard is facing a headwind, with the U.S. Federal Trade Commission ("FTC") seeking to block it. In a recent development, the FTC filed a request in a California federal court, seeking to prevent Microsoft from finalizing the deal until a decision is made.

This action adds further pressure on the gaming industry's largest deal, as the FTC had already initiated its own in-house court proceedings against the acquisition last year, which is scheduled to begin in August. Challenging a completed deal creates greater complications for the company.

The action taken by the regulator against Microsoft's deal is considered to be a prominent challenge presented by the administration of President Joe Biden. The administration has appointed a group of progressive antitrust officials who are determined to address what they view as anti-competitive practices within the U.S. economy. Lina Khan is the chairwoman of the FTC since 2021.

In April, the U.K.'s Competition and Markets Authority (CMA) made a ruling to block the deal, significantly jeopardizing the acquisition. The evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision's games exclusive to its own cloud gaming service.

Recent Updates of the Acquisition

The main problem with the acquisition is regarding the competition. Microsoft’s gaming division would have too much of the industry, which could unfairly limit its competitors and ultimately harm the consumers.

Microsoft expressed its appreciation for the chance to present its case in federal court and stated that the company believes expediting the legal process in the United States, which would eventually result in increased market options and competition.

PlayStation, a prominent competitor to Xbox, has been the most outspoken critic of the deal, expressing concerns that Microsoft's acquisition of franchises like Call of Duty could sway users' console choices. This is because Microsoft has the ability to make the franchise an exclusive for Xbox, potentially impacting PlayStation's user base.

Microsoft has publicly declared that it has no plans to make Call of Duty exclusive to Xbox and even extended a legally binding proposal to PlayStation, ensuring the game's availability on Sony's consoles for a period of 10 years. However, the offer was declined.

Zacks Rank & Key Picks

Currently, Microsoft carries a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for MSFT’s 2023 earnings is pegged at $9.65 per share, indicating year-over-year growth of 4.78%. The consensus estimate for fourth-quarter 2023 revenues is pegged at $55.35 billion, indicating year-over-year growth of 6.73%.

Shares of Microsoft have gained 38.4% year to date compared with the Zacks Computer and Technology sector’s rise of 32.4% in the same period.

Some better-ranked stocks are Cinemark (CNK - Free Report) and Crocs (CROX - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Cinemark have gained 113.1% year to date. The Zacks Consensus Estimate for Cinemark’s second-quarter 2023 revenues is pegged at $868.74 million, indicating a year-over-year rise of 16.75%. The consensus mark for earnings is pegged at 52 cents per share, which has remained unchanged over the past 30 days.

Shares of Crocs have gained 6.6% year to date. The Zacks Consensus Estimate for Crocs’ second-quarter 2023 revenues is pegged at $1.05 billion, indicating year-over-year growth of 8.35%. The consensus mark for earnings is pegged at $2.95 per share, which has decreased by 1 cent over the past 30 days.


 


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