The video game industry is still buzzing from last week’s announcement that Microsoft (NASDAQ:MSFT) is buying Activision Blizzard (NASDAQ:ATVI). And for investors, the deal means its time to parse out the stock winners and losers in the deal.
Microsoft’s $68.7 billion deal to buy Activision will make it the globe’s third-largest gaming company and the largest game company in the U.S.
After the deal closes, Microsoft will own some of the biggest and best gaming franchises in the world. It will add Call of Duty, Candy Crush, World of Warcraft and others to its already impressive stable that includes Minecraft, The Elder Scrolls and Fallout.
The deal is expected to close by June 2023, which is the end of Microsoft’s 2023 fiscal year. But it first needs to win approval from the Federal Trade Commission, the Securities and Exchange Commission, the Justice Department and regulators in the European Union.
There’s a long way to go. But the deal should go through.
Who will be the biggest winners and losers from the Microsoft-Activision Blizzard deal? We identify some of them here:
- Activision Blizzard
- Electronic Arts (NASDAQ:EA)
- Take-Two Interactive Software (NASDAQ:TTWO)
- Unity Software (NYSE:U)
Stock Winners: Activision Blizzard (ATVI)
Maybe it’s too obvious to call ATVI stock a winner in this deal. But I want to highlight it anyway, because there are still profits to be had here — assuming the merger goes off as planned.
Remember, Microsoft is buying the company for $95 per share. ATVI stock was trading in the low $60s when the deal was announced. At this writing, it’s higher at just over $81. That’s still 16% below the price that Microsoft will pay.
And you can’t forget that the Microsoft deal comes at a great time for Activision, which has been kind of an embarrassment as of late. A lawsuit filed last summer in California alleges that women endured daily harassment and abuse while working at ATVI.
Look for Activision Chief Executive Officer (CEO) Bobby Kotick to retire after the deal closes.
Stock Winners: Electronic Arts (EA)
One interesting thing about the Microsoft-Activision deal is talk of how it will play with the metaverse. Microsoft CEO Satya Nadella brought it up immediately in the purchase announcement:
Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms. We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.
There are a lot of companies looking to invest in the metaverse right now – most notably companies like Meta Platforms (NASDAQ:FB). Games are powerful content that plays well in the metaverse. And the Microsoft-Activision deal puts game manufacturers like Electronic Arts into play.
Electronic Arts isn’t as big as Activision Blizzard, but it has great titles of its own. Its top franchises include FIFA, Madden and of course The Sims – the latter is seemingly tailor-made for metaverse play.
EA stock rose more than 6% after the MSFT-ATVI announcement.
Stock Winners: Take-Two Interactive Software (TTWO)
TTWO stock is another game manufacturer, and it’s also on the move for similar reasons as EA stock. Take-Two stock is also up more than 6% in the last few trading sessions.
Take-Two is already well-known for two franchises that have deep, immersive multiplayer games already available online. Grand Theft Auto Online is a version of the company’s massively popular Grand Theft Auto V. And for those of you who want to ride a horse instead of racing souped-up cars through city streets, TTWO offers Red Dead Online. That’s a version of its popular Red Dead Redemption 2 game.
Stock Winners: Unity Software (U)
Rather than being a maker of games, Unity Software offers a subscription service that includes cross-platform software development tools.
Gaming studios use Unity’s software engine to build games that can be played on mobile and PC platforms. Games using Unity’s platform can also be operated on several different gaming platforms.
U stock is on our list of stock winners because the Microsoft-Activision deal makes it more appealing as a takeover target. And even if it isn’t absorbed by a bigger fish. Unity’s products will be in demand in an increasingly competitive environment.
Piper Sandler analyst Brent Bracelin says Unity is an indirect beneficiary of the deal. He calls it the leading 3D creator platform for gaming, movies, metaverse, and augmented reality and virtual reality applications.
Stock Losers: Sony Group (SONY)
Sony is the most obvious loser in the Microsoft-Activision deal. Sony manufacturers the PlayStation gaming console, which competes directly with Microsoft’s Xbox platform.
The Activision deal will provide an immediate benefit to the Xbox GamePass monthly subscription service. GamePass gives players access to hundreds of game titles for a cheap price. Microsoft says it will add titles from Activision Blizzard’s extensive game library to GamePass.
On top of that, there’s a legitimate threat that Microsoft will make some of Activision Blizzard’s most popular titles exclusive to the Xbox. PlayStation would become much less appealing if gamers realized they could play Call of Duty or World of Warcraft on an Xbox but not a PlayStation.
Sony stock fell more than 10% since the Microsoft-Activision announcement.
Stock Losers: GameStop (GME)
GameStop stock is a favorite among the Reddit meme traders. But even r/WallStreetBets fanbois have to realize that the Microsoft-Activision deal is bad news for GME stock.
(They do get it, right?)
Microsoft sells games directly to consumers. And when the Activision game titles fall under Microsoft’s umbrella, there’ll be fewer new games for GameStop to peddle in its role as the middleman between game companies and consumers.
Think about it. The Xbox GamePass will cost $9.99 a month, in which gamers can access more than a thousand titles after the Activision deal goes through. Or, a gamer can pony up $5 or $10 for a single used game from GameStop.
GME stock was already hemorrhaging, down more than 40% over the last six months. That includes a 30% drop in the last 30 days.
Stock Losers: Nintendo (NTDOY)
Nintendo is the so-called “other” game console manufacturer in this tale. The Japanese company’s most recent platform, the Nintendo Switch, has been seeing record engagement among users. Its major franchises include Zelda, Pokemon and the Mario series of games.
Nintendo’s Switch has been the best-selling console on the planet for 34 of the last 35 months. That’s impressive.
But there are signs of trouble ahead. The Switch has been out since 2017. That’s a long time in the life of a console. And it’s becoming clear that gamers are starting to look for the next greatest thing. Sales in the first six months of 2021 were down 34% from the same period in 2020.
Nintendo has $15 billion in cash and cash equivalents, according to its most recent earnings report. That gives it plenty of money to make a big move. It may have to do something flashy to draw some attention away from Microsoft.
Stock Losers: Shiba Inu (SHIB-USD)
I know, I know. Shiba Inu’s not a stock. The pupcoin cryptocurrency has a lot of fans and sells for super-cheap fractions of a penny. And it’s suffered in recent weeks after coming down from all-time highs.
If anything needs a positive catalyst these days, its SHIB-USD. Its price is down 35% just since the first of the year and 48% over the last two months.
So, perhaps it’s not a surprise that Shiba Inu’s resident spokesperson, Shytoshi Kusama, jumped on Twitter (NYSE:TWTR) after the Microsoft-Activision deal was announced. Kusama says the merger is promising for Shiba Inu as well.
Remember that in November SHIB announced that former Activision executive William Volk was joining Shiba Inu as a consultant. Kusama says the acquisition “echoes” SHIB’s decision to hire Volk. Shiba Inu also says that it shares a similar vision as Microsoft.
Is that a stretch? Probably. Kusama’s statements haven’t done anything to stop the stall in the Shiba Inu price, that’s for sure. So I’m putting this one in the “stock losers” pile because of SHIB’s failed (and lame) attempt to spin the deal to its favor.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.