Activision Blizzard
Is Microsoft a logical home for your ETN proceeds?
On 16 October, Microsoft and Activision Blizzard announced that the long-awaited takeover of the latter by the former had been completed. The deal was initially announced in January 2022, but the last 20 months has seen the companies caught in regulatory hurdles which delayed the implementation of the takeover.
Activision Blizzard is the publisher of games like Call of Duty, World of Warcraft, Diablo, and Candy Crush, among others. The deal was valued at $68.7 billion and was Microsoft's largest acquisition to date - ahead of the mega-deal to acquire LinkedIn in 2016 ($26 billion).
Microsoft, founded in 1975, is one of the world's leading technology companies with products that include the Windows operating system, Office, and Azure cloud services. The company offers licensing and support for its wide portfolio of software products, designing, selling, and delivering devices and online advertising to a global audience. It also owns LinkedIn - a business-oriented social network. Outside the office, Microsoft's Xbox gaming system is second only to Sony's PlayStation. The inclusion of Activision Blizzard into the fold will meaningfully alter Xbox's gaming platform and will make it the third largest gaming company in the world by revenue after Tencent and Sony.
In the coming weeks, Microsoft will add many of Activision Blizzard's games to Xbox Game Pass and other platforms, although latest games Modern Warfare 3 and Diablo IV won't be coming to Xbox Game Pass before the end of the year. There are some question marks in certain areas like eSports where Activision Blizzard has a very strong foothold, but popularity of the format has been weighing.
Activision Blizzard shareholders will receive cash for their shares and ETN holders on the JSE will also receive their investment settled fully in cash. We think Microsoft offers a compelling exposure not only to gaming but to other technology thematics like cloud, AI, and cybersecurity. The stock is regarded as reasonably valued, and we would be comfortable to shift our exposure from Activision Blizzard to Microsoft at this juncture.
What we like about Microsoft
What we don't like about Microsoft
Microsoft Outlook and Consensus
Microsoft Valuation
Microsoft is trading on a forward PE of 28.8 times, this represents a 30% premium to peers against an average of 15% over the last five years. The stock looks expensive relative to peers, but growth is expected to be steadier than and well above that of the broader sector medium term.
The stock looks fairly valued relative to its own history, trading only slightly above its five-year average rating.
