Microsoft (MSFT), Activision (ATVI), Take-Two (TTWO), Zynga (ZNGA): Get ready for a new era in gaming

Over the past two weeks, the gaming industry has witnessed some key developments, namely the Microsoft-Activision and Take-Two Interactive-Zynga deals. These are major transactions that could herald a new era in gaming. The gaming industry has gained massive momentum over the past two years and it is expected to see continued growth over the long term.

Two mega acquisitions

On Tuesday, Microsoft Corp. (NASDAQ: MSFT) announced its plans to acquire Activision Blizzard Inc. (NASDAQ: ATVI) for $68.7 billion. The transaction is expected to close in fiscal year 2023 and is expected to be accretive to adjusted EPS upon close. Upon closure, the Activision Blizzard business will become part of Microsoft Gaming.

This announcement comes on the heels of last week’s news about Take-Two Interactive’s (NASDAQ: TTWO) agreement to acquire Zynga (NASDAQ: ZNGA) for approx. $12.7 billion. This deal is expected to close during the first quarter of Take-Two’s FY2023.

Portfolio

The acquisition of Activision Blizzard will make Microsoft the third largest gaming company in the world by revenue, behind Tencent and Sony. It will bring billion-dollar franchises like Call of Duty, World of Warcraft, and Candy Crush under Microsoft’s umbrella, which already has titles like Minecraft and Halo along with franchises acquired through the ZeniMax acquisition such as Fallout, Doom, and Elder Scrolls.

Microsoft also has plans to launch Activision Blizzard’s games into its Game Pass service, which currently has over 25 million subscribers. Activision’s franchises, along with its monthly active player base which is close to 400 million, will give Game Pass some robust gaming content.

Similarly, Take-Two is the owner of vastly popular titles such as Grand Theft Auto, Red Dead Redemption, and Borderlands. The acquisition of Zynga will give it renowned franchises such as FarmVille, Toon Blast, Toy Blast, and Golf Rival.

Mobile gaming

The biggest highlight of both these transactions is the opportunity they present in mobile gaming. Mobile is the largest segment in gaming with 95% of all players worldwide engaged in mobile games. It is also the fastest-growing segment in the industry with an estimated $136 billion in gross bookings in 2021 and an expected compound annual growth rate of 8% over the next three years, based on data from IDG Consulting.  

The acquisition of Activision Blizzard will help Microsoft expand its presence in mobile gaming by giving it access to games like Candy Crush which operate under Activision’s King segment. The acquisition of Zynga is expected to give Take-Two a leading position in mobile gaming, with mobile expected to comprise over 50% of its net bookings in FY2023.

The deal with Zynga will boost Take-Two’s mobile offerings by giving it access to popular titles in fast-growing mobile game categories such as casual, hyper-casual and sports games. The addition of Zynga’s mobile titles will also expand Take-Two’s base of Recurrent Consumer Spending.

Industry outlook

In its release, Microsoft stated that the $200+ billion gaming industry is the largest and fastest-growing form of entertainment, with the total number of video game releases increasing 64% in 2021 compared to 2020. Currently, 3 billion people across the world play games and this number is expected to grow to 4.5 billion by 2030. A report by WePC estimates that the video gaming industry will be worth $268 billion by 2025.

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