Microsoft Prevails in FTC Trial, Paving the Way for Activision Deal to Close Soon

Microsoft Stock at a Glance

• Fair Value Estimate: $325
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

We see a clear path forward for Microsoft’s MSFT acquisition of Activision Blizzard ATVI, as a federal judge denied the Federal Trade Commission’s motion for a preliminary injunction to halt the deal. We maintain our fair value estimate of $325 per share and see the stock as fairly valued.

The FTC can still bring the case to the U.S. Court of Appeals, and while anything is possible at this point, we do not think the regulator will pursue that path, as we still believe the anticompetitive case is spurious. The only remaining hurdle to the deal is the Competition and Markets Authority in the United Kingdom. Microsoft and the CMA agreed today that the firm would pause litigation and try to negotiate a settlement on any remaining issues with the transaction, which we believe concern cloud gaming. Even if no CMA approval is forthcoming, we think today’s decision effectively paves the way for the acquisition to close shortly.

We like the deal, as Microsoft will bolster its already-strong gaming division with an iconic library that includes games by Activision Blizzard and mobile developer King. Microsoft has minimal exposure to mobile, the largest gaming platform, so we think King and its Candy Crush franchise will instantly give the company a foothold there. Activision Blizzard has some of the most popular game franchises of all time under its umbrella, including Call of Duty and World of Warcraft, which changed the industry in 2004 with its breakthroughs for massively multiplayer online gaming, including its monthly subscription model.

Microsoft intends to add as much Activision content as possible to its Game Pass service, which has an estimated 25 million subscribers. Activision’s games have approximately 360 million monthly active users. We tend to think the purpose of deals like this is to gather exclusive content. However, part of Activision’s value is that it develops games across platforms and consoles, so we expect a relatively light slate of exclusive Xbox content over the next several years.