Microsoft Corp. (MSFT) had headlines buzzing this week following the company’s announcement of its planned acquisition of video game publisher Activision Blizzard (ATVI).
Microsoft CEO Satya Nadella said Tuesday he plans for the tech giant to buy the Call of Duty and Candy Crush publisher for almost $69 billion cash. This would be the biggest tech deal in U.S. history.
For reference, $69 billion is more than double what the company has ever paid (it bought LinkedIn for $26 billion) and a similar sum to what the company paid for its next largest five acquisitions combined.
Microsoft stock took a small hit following the announcement and ended Tuesday down 2.4%. But Activision shares jumped, closing up 26% at $82.31 Tuesday.
This isn’t the first time Microsoft has gone after a gaming company. The company announced in September 2020 its plans to acquire ZeniMax Media, the parent company of game publisher Bethesda Softworks. The deal closed for $7.5 billion cash in March 2021, bringing Microsoft from 15 to 23 game studios.
And Microsoft is not the only company on the hunt to acquire video game makers. Throughout 2021 several other big tech companies bought smaller gaming companies. To name a few…
- Netflix (NFLX) purchased Night School Studio and added five video games to its streaming offerings
- Epic Games bought Mediatonic, the brains behind popular party game Fall Guys, and Harmonix, the Rock Band publishers
- Tencent Holdings Limited (TCEHY) acquired Turtle Rock Studios, along with two other studios.
- Sony Group Corporation (SONY) purchased five different studios in its hunt to dominate the gaming industry.
Shares of Sony stock have already fallen this month as investors recognize the threat from Microsoft’s intended acquisition.
To me, this new deal is good news for both Microsoft and Activision.
Microsoft has been seeking a better position in the video gaming industry and the metaverse. Importantly, purchase of the video game publisher comes with its 400 million-strong customer base, which will expand Microsoft Gaming immensely. This deal is expected to bring the company into competition with the video game giants and expand its already massive total addressable market.
News of the merger comes just a week prior to Microsoft’s scheduled earnings announcement for its second quarter in fiscal year 2021. Analysts expect earnings to rise 13.79% year-over-year to $2.31 per share, up from $2.03 per share in last year’s second quarter. Revenue is expected to increase 18% year-over-year to $50.88 billion. Earnings estimates have been revised 4.1% higher in the past three months, so an earnings surprise is possible.
So, is MSFT a buy heading into earnings? Well, according to my Portfolio Grader, it is.
As you can see in its Report Card above, MSFT holds an A-rating for its Quantitative Grade, as it continues to see strong institutional buying pressure. Its fundamentals are a little lacking, as it holds an F-rating for Earnings Momentum and C-rating for Earnings Surprises, though it still receives a C-rating for its overall Fundamental Grade.
Add it all up, and MSFT has a total B-rating, making the stock a “buy” right now.
Now, while Microsoft is certainly a stock to watch, I’m more excited about what my Growth Investor stocks have to offer. My Buy List stocks are characterized by 34.5% annual sales growth and 44.4% annual earnings growth, so I expect them to post wave-after-wave of positive earnings results in the coming weeks, which, in turn, should dropkick and drive the stocks higher.
To learn more about the stocks I like the most right now, as well as my newest buys and list of Top Stocks, click here for full details.
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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: