Microsoft Buys Activision Blizzard !?! | ATVI Stock | MSFT Stock | $68.7 billion cash deal

TL;DR

Microsoft announced a $68.7 billion all-cash deal to buy Activision Blizzard, adding major gaming properties such as Call of Duty and World of Warcraft to its Xbox business. The analysis reviews ATVI’s valuation, cash flow, revenue, profit, shares, and debt while explaining why MSFT may want the company despite its pre-announcement five-year P/E of 31. Read on for the specific financial figures and acquisition rationale.

Transcript

check please welcome back to everything money big news today that gaming company that all of you love activation blizzard was bought by microsoft paul 68.7 billion dollars paul it's got me reeling the day trading people are freaking out in this video we're going to go over the financials for both companies we'll use our software to show you the num... Read More

Key Insights

• 🛄 Microsoft's acquisition of Activision Blizzard aims to establish dominance in the gaming industry.
• 👾 Call of Duty and other popular game titles add significant value to Microsoft's portfolio.
• 💪 Activision Blizzard's stable cash flow and strong financial performance make it an attractive acquisition target.
• 😀 Sony and the PlayStation brand face increased competition as Microsoft seeks to dominate the gaming market.
• 🛟 Microsoft's ample cash reserves provide the financial capability to make the acquisition.
• 🤝 Regulatory approval and anti-competitive concerns could pose challenges to the completion of the deal.
• 💗 The acquisition highlights the growing importance of the gaming industry and the potential of metaverse and virtual reality technologies.

Questions & Answers

Q: Why did Microsoft buy Activision Blizzard for $68.7 billion?

Microsoft is using cash to expand its gaming position and acquire a collection of established game properties, including Call of Duty and World of Warcraft. The speakers say the deal reflects Microsoft’s goal of becoming a dominant player in an increasingly competitive gaming industry.

Q: What are the main terms of Microsoft’s Activision Blizzard deal?

The announced acquisition is an all-cash deal valued at $68.7 billion. The speakers describe it as Microsoft’s biggest acquisition ever and say it would make Microsoft the third-largest gaming company in the world.

Q: Was Activision Blizzard stock expensive before the deal announcement?

Before the morning price jump, Activision Blizzard had a five-year P/E ratio of 31, above the analysis tool’s preferred maximum of 22.5. The speakers expected the stock to rise about 30% that morning, which they estimated could push that ratio to roughly 40.

Q: How strong was Activision Blizzard’s return on invested capital?

Activision Blizzard’s five-year return on invested capital was 9.7%. That exceeded the speakers’ benchmark of 9%, although they expected a software company’s return to be higher.

Q: How much free cash flow did Activision Blizzard generate?

Activision Blizzard averaged about $2 billion in annual free cash flow over the previous five years. It generated $2.8 billion in the latest year discussed, which the speakers characterized as stable cash flow.

Q: Were Activision Blizzard’s revenue and profits growing?

Revenue was relatively stagnant during the first five years of the decade discussed, but later increased from $7 billion to $9 billion. Net income also rose from $1.1 billion five years earlier to $2.64 billion in the latest year shown.

Q: Was Activision Blizzard reducing its share count?

No. Its outstanding shares increased from 742 million to 778 million over the five-year comparison, so it failed the speakers’ share-count test. They also noted that the company had 1.1 billion shares outstanding 10 years earlier, though they did not know what caused the larger historical decline.

Q: What games would Microsoft gain from Activision Blizzard?

The acquisition would add Activision Blizzard properties including Call of Duty and World of Warcraft to Microsoft’s gaming portfolio. The speakers connect those recognizable titles with Microsoft’s effort to strengthen the Xbox business and become a dominant gaming company.

Summary & Key Takeaways

• Microsoft's acquisition of Activision Blizzard solidifies its position in the gaming industry and positions it as a dominant player.

• Activision Blizzard brings popular game titles such as Call of Duty and World of Warcraft to Microsoft's portfolio.

• The financial analysis shows Activision Blizzard's stable cash flow, strong revenue and profit growth, while Microsoft's ample cash reserves and potential cost-saving opportunities can justify the acquisition.