Swaggy's Top Stonks - MSFT vs ATVI
Swaggy's Top Stonks - MSFT vs ATVI
A breakdown of the acquisition.
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Today's letter we'll be diving into the Microsoft (MSFT) x Activision Blizzard (ATVI) acquisition and taking a look at the numbers behind the merger.
Today's Letter
MSFT + ATVI Merger Details
Earnings Season
Trending Cryptos
Trending Meme Stocks
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MSFT + ATVI Merger Details
Deal Details
Microsoft announced its intent to acquire Activision Blizzard in an all-cash transaction for $95 per share ($68.7 billion in enterprise value).
The deal is expected to close in FY23, but pushback from regulators is expected
The deal expected to be accretive to Non-GAAP EPS
This is the largest acquisition Microsoft has announced to date, making it almost 3x larger than the Linkedin deal.
Post deal close Microsoft stated that it will become the 3rd largest gaming company in the world by revenue behind Tencent and Sony
Activision Blizzard's current CEO Bobby Kotick will stay on as CEO and will report to the head of Xbox at Microsoft, Phil Spencer.
It is not clear yet if MSFT will make Activision games exclusive to Xbox. However this would be uneconomical given it lowers each gaming franchise’s TAM and revenue potential. Phil Spencer was also quoted as saying it is not their intention to do this.
Deal Rationale
Considerable value exists owning first-party content and delivering that content into Xbox Game Pass via the Xbox Cloud Gaming. This is the key rationale to the deal; building out the best catalogue possible to offer in its high margin Game Pass business, which creates a virtuous circle of more subscribers joining the recurring revenue platform, to avail of the best exclusive catalogue on the gaming market.
Game Pass currently has 25 million subscribers, while Xbox Live exceeds 100 million monthly active users (MAUs).
The deal brings 400 million Activision Blizzard MAUs to Microsoft. This allows MSFT to expand their audience for both paid subscriptions and in-game transactions, which could provide Microsoft with multiple strategic monetization opportunities both near and long term.
The deal brings the addition of extremely popular gaming franchises and underlying IP to the MSFT gaming catalogue, such as
Call of Duty
World of Warcraft
Overwatch
Diablo
Crash Bandicoot
A significantly improved game catalogue, likely enables MSFT to attract more users to Game Pass.
Mobile is the largest and fastest growing part of gaming. Activision Blizzard’s mobile business represents 30% of group bookings where they have strong franchises such as Candy Crush. As Microsoft is underpenetrated in mobile gaming, this acquisition allows MSFT to leverage ATVI’s larger franchises in mobile gaming as well as ATVI mobile gaming IP in order to build out a strong proposition in mobile gaming.
Positions Microsoft to be a leader in developing the metaverse. Activision’s World of Warcraft game is perhaps the earliest iteration of the nascent metaverse space, going back 2 decades. Microsoft already has made investments in metaverse geared products such as HoloLens and Mesh. ATVI’s game catalogue could be levered using Microsoft’s HoloLens other MSFT metaervse capabilities which creates some cross sell revenue synergy potential.
Financials
Sales: the deal enhances MSFT sales for 2022 by ~2%
EPS accretion likely to be low to mid single digit, depending on synergies achieved
MSFT has $77B in net cash and consensus has the company generating a further $70B over the next 12 months.
Valuation
$95 per share- representing 48% premium to Activision’s price of $64 pre deal announcement
At an Enterprise value of $68.7B, this implies an ATVI valuation of
8X NTM Revenue
18x EV/EBITDA
21x NTM FCF
26X NTM P/E
Earnings Season
Banks and airlines reported this week. Results were mixed and most companies saw a slight decline in post-earnings trading. Netflix did report today after the bell, here's what you missed.
Netflix (NFLX)
Revenues $7.71b vs $7.71b estimate. In-line.
EPS $1.33 vs $0.81 estimate. Beats
NFLX offered a lower guidance on EPS by 20% and a lower guide on revenues attributed to a slow in international growth. Shares of Netflix are down 20% in after-hours trading. Yikes.
Keep an eye on this weekend's Swaggy letter where we'll go through some of the more anticipated names reporting next week and what to look for.
Trending Crypto Currencies
Here's a look at which crypto currencies have been at the top of the social chain. This is all part of SwaggyStocks' latest crypto addition that monitors social trends and sentiment in the crypto scene.
Bitcoin (BTC) and Ethereum (ETH): The usual players that make the top of the "store's of value" coins remain the same.
Cardano (ADA), Chainlink (LINK), & Algorand (ALGO): These names have more or less been in the top 20 coins in terms of social volume. This week they made a few moves and have slighted their way up the ranks into the top 10.
Dogecoin (DOGE) & Shiba Inu (SHIB): These two coins that made the rare appearance (as of lately anyways) into the top 10 most mentioned crypto currencies have lost their social hype. DOGE has lost 14 rank spots and is down to #19 while SHIB sits at the 23rd most mentioned.
Trending Meme Stocks
Some names infamously making it to the top of the list today. Here's what we have:
Peloton (PTON): Shares of PTON were down 24% today after the company announced they are taking a break from manufacturing new bikes and treads to save the company reduce on costs.
Netflix (NFLX): Netflix is making headlines after they missed on earnings and guided down for Q1.
SoFi (SOFI): Made headlines yesterday as the company gained approval and clearance for Bank Charter. Shares were up 15% yesterday and another 10% in today's action.
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