Activision Blizzard Upside Less Attractive Than Peers, Says Analyst

Two days ago, Activision Blizzard, Inc. (ATVI) agreed to a takeover bid from Microsoft Corp. (MSFT), placing the prolific video game developer into a scaled hardware and software platform business. Upon news of the proposed acquisition, ATVI stock closed up about 26%. The all-cash deal is estimated to be valued between $68 and $75 billion, and may finalize between six and 18 months in the future.  

While the deal values ATVI shares at $95 a piece, the stock is currently trading at $82.15, still leaving some room for upside. However, not all financial analysts see this upside as worth the time.  

One of these neutral voices comes from Benjamin Soff of Deutsche Bank, who wrote that while about a 15% upside remains for ATVI, he sees far better prospects in its peers, such as Electronic Arts (EA) and Take-Two (TTWO). Despite this, he does not anticipate the deal to fall through, due to the low probability of a more motivated buyer jumping in, along with moderate regulatory risk.  

Soff downgraded the stock to Hold from Buy, and assigned his price target at $95. This target currently represents a potential 12-month upside of 15.64%.  

Regarding regulatory concerns over approval, the problem is not that the increased horizontal integration would induce monopolistic behavior.

Instead, Soff argued that there are “elevated government concerns over Big Tech’s market power in an increasing number of areas within the US.” The relatively extended period for the pending oversight of the deal certainly reflects that, according to Soff.  

The analyst is still encouraged by the deal in general. He opined that Microsoft will most likely direct Activision’s content slate toward a wider variety of console and gaming platforms, as opposed to monopolizing it for Xbox.  

Meanwhile, he mentioned that Microsoft is “uniquely positioned for this deal,” due in part to its “leading cloud and technology infrastructure and extensive customer relationships.”  

Activision Blizzard’s next upcoming earnings release is expected on February 3, after market hours.

On TipRanks, ATVI has an analyst rating consensus of Moderate Buy, based on 10 Buy and 14 Hold ratings. The average Activision Blizzard price target is $93.94, reflecting a possible 12-month upside of 14.35%. 

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