Microsoft (MSFT) might have recently lost out on the TikTok deal, but the tech giant won’t let the disappointment affect its mojo.
On Monday, Microsoft announced it will buy ZeniMax Media, the owner of Bethesda Softworks, and one of video game publishers’ biggest names, in a cash deal worth $7.5 billion.
After LinkedIn and Skype, the deal represents Microsoft’s third largest acquisition of all time and easily puts in the shade its previous biggest gaming-related purchase, the $2.5 billion it splashed out on Minecraft-maker Mojang six years ago.
Top quality video game franchises including Elder Scrolls, Fallout, Doom and Wolfenstein will join the Microsoft Games stable. The addition of strong franchises is an important factor in gaming circles, with many hours spent by gamers on one title alone.
The acquisition is expected to be completed in F2H21 (which began in July). Microsoft anticipates it will have little impact on non-GAAP operating income in fiscal 2021 and 2022.
Raymond James analyst Robert Majek believes the deal will add more clout to an overlooked segment of the Microsoft portfolio.
“Besides increased unit economics,” Majek said, “The value-add for Microsoft is flexibility/control as the company seeks to bolster the lineup of its GamePass subscription service, which now has 15 million subscribers & xCloud, the company’s recently launched cloud gaming platform. Overall, we are encouraged by the continued push into gaming which we believe is an underappreciated aspect of Microsoft’s secular growth story.”
Microsoft will add the ZeniMax collection to Game Pass, its video game subscription plan, which goes for $10-15 and month and boasts over 100 games on demand. A recent report by the Verge showed that Game Pass subscribers have increased to 15 million, representing 50% growth from the 10 million Microsoft announced in April.
Additionally, last week Microsoft launched XCloud, its cloud gaming service. The new offering allows players to stream any console or PC game to any device.
All in all, Majek keeps a Strong Buy rating on MSFT shares along with a $235 price target. This figure implies a 16% upside from current levels. (To watch Majek’s track record, click here)
Strong Buy is also the conclusion reached by the analyst consensus. The bullish score is based on 23 Buys and 3 Holds. There’s 13% of upside in the cards, according to the Street, given the average price target clocks in at $230.16. (See Microsoft stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
