Microsoft’s
$69 billion acquisition of
Activision Blizzard
has taken from the board one of the few remaining large pure-play videogame publishers trading on the Nasdaq. The resulting scarcity is good news for shares of
Take-Two Interactive Software
and
Electronic Arts.
Due to its sheer size, Microsoft’s Activision deal was viewed as a barometer for the global regulatory environment when it was announced in 2022. Microsoft faced a long, winding path and had to agreed to concessions on streaming rights to close history’s largest tech deal.
But now that the deal has closed, Microsoft’s success could embolden other big technology companies seeking a better foothold in videogames. The research firm Newzoo estimates that the global games market will generate $187.7 billion in 2023 revenue.
For months, analysts have pointed to the Activision deal as a factor that cold boost videogame stocks broadly, because it leaves public equity investors with fewer options to bet on the industry. Further acquisitions, or expectations that they could happen, would boost valuations. Microsoft eventually adding Activision games to its Xbox Game Pass subscription service could also save gamers money, which could funnel spending to other games.
Take-Two (ticker: TTWO) and Electronic Arts (EA) would be the most obvious targets for a big tech suitor. Take-Two owns franchises like Grand Theft Auto, Red Dead Redemption, and NBA 2K. EA’s portfolio includes Madden NFL, EA Sports FC (the soccer game formerly branded FIFA), The Sims, and Battlefield.
European game publishers that could garner M&A interest include
Ubisoft
(UBSFF), which publishes the Assassin’s Creed and Rainbow Six franchises, and
CD Projekt,
home of The Witcher and Cyberpunk 2077 games.
Though
Nintendo
(NTDOY) isn’t likely to sell itself, Microsoft has pledged to bring Call of Duty games to
Nintendo
platforms. The stock would also benefit if valuations across the industry were higher.
In a note raising his Take-Two rating to Outperform from Market Perform on Wednesday, Raymond James analyst Andrew Marok wrote that he believes Take-Two will “carry with it a premium given ongoing interest from Big Tech/Big Media companies in gaming deals (and precedent for deal approvals).”
Take-Two shares were flat in Friday trading, while EA shares were down 0.8%. Ubisoft rose 0.4%, while CD Projekt shares in Poland closed 0.3% higher.
Write to Connor Smith at connor.smith@barrons.com
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