The EU is likely to approve Microsoft’s acquisition of Activision Blizzard (ATVI:NSD), according to a recent media report. Despite facing regulatory hurdles in the US, Europe, and the UK since its announcement in early 2022, Microsoft remains confident that the deal will go through. The US FTC had requested a judge to block the acquisition, citing concerns about competition in the gaming industry. However, Microsoft has offered concessions, including licensing deals to rivals such as Nintendo, Nvidia, and Sony, for the Call of Duty franchise.
Regardless of the deal’s status, Activision Blizzard stock is well-positioned for growth. As the parent company of major franchises such as Call of Duty and Candy Crush, it reported strong Q4 2022 results that surpassed street estimates, with net bookings of $3.6 billion and a 43% year-over-year growth.
The company’s Diablo IV title launch in June 2023 is expected to drive top-line growth next year, and the company is projected to achieve bookings of around $9.5 billion, a 12% year-over-year growth rate. Although the operating margin contracted in 2022 due to higher costs, a rebound is anticipated next year. Activision Blizzard’s balance sheet remains robust, with 6% debt as a percentage of equity and 26% cash as a percentage of assets.
Activision Blizzard Stock Analysis:
Despite an 11% increase in stock price over the past month, Activision Blizzard stock is still trading below Microsoft’s $95 offer, at $79 per share. However, with an estimated valuation of $91 per share and a current trading multiple of 20x its 2023 earnings estimate of $3.94, ATVI stock has room for growth. Any dip in stock price from current levels may present a buying opportunity for long-term gains.
In summary, Activision Blizzard’s strong position in the gaming industry and upcoming Diablo IV title launch make it an attractive investment opportunity, regardless of the outcome of Microsoft’s proposed acquisition. Investors should monitor the stock’s valuation and be aware of potential trading opportunities resulting from Covid-19 pricing discontinuities.
