Activision Blizzard Inc. one of the largest gaming companies in the world, has created household name franchises such as Call of Duty, World of Warcraft/Warcraft, Diablo, Candy Crush, and more.
Purchasing this stock right now is an interesting question because Microsoft has offered to buy the gaming company for $68.7 billion, or $95 per share. However, antitrust regulators in the U.S. and abroad have gotten involved. Furthermore, a large tickdown of technology stocks could also affect your decision as an investor, as well as a lack of demand for games by this particular company.
Let's take a look at what it means for you as an investor, whether buy-and-holding this stock makes sense and the pros and cons of investing in Activision Blizzard.
About Activision Blizzard Inc.
Activision Blizzard Inc., headquartered in Santa Monica, California, develops and publishes interactive entertainment content and services worldwide. It develops and distributes content for its franchises, including Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch, Overwatch League and Candy Crush. It also produces:
- Video game consoles
- Personal computers
- Mobile devices
- Subscription, full-game, and in-game sales
- Licensing software to third-party or related-party companies that distribute product
- Proprietary online gaming service, Battle.net
- Esports leagues
- Digital advertising content
- Warehousing, logistics and sales distribution services to third-party publishers of interactive entertainment software
Activision Blizzard serves retailers and distributors, consumer electronics stores, discount warehouses and game specialty stores.
What does buying and holding Activision Blizzard Inc. mean for investors?
When you purchase shares, you own a small sliver of a company. You also gain voting rights (which correspond to the number of shares you own) and a stake in corporate profits. A buy-and-hold investment strategy means that you buy securities and hold them for a long period of time, potentially for decades, before you sell. You'll benefit from its dividend at a current $0.47 annually.
Stocks often give you an opportunity to earn more than you would be able to if you invested in bonds instead. A buy-and-hold strategy also offers ample tax benefits because you can take advantage of capital gains on investments that you hold long term.
What's Going on with Microsoft Corporation and Activision Blizzard Inc.?
Microsoft Corporation (NASDAQ: MSFT) offered to buy Activision Blizzard Inc. in January 2022 and has said the deal should be complete by June 30, 2023. Arbitrageurs believe that it may be a done deal. If that's the case, investors could make a killing, particularly because the company’s shares currently hover at $79.87 as of this writing, far below the offer price.
It's possible that the deal may not be approved, which could send the stock price careening downward. Warren Buffett, the Oracle of Omaha, on the other hand, has increased his stake in the company, confident that the deal will close. Berkshire Hathaway now owns about 9.5% of Activision Blizzard Inc. shares.
Pros and Cons of Investing in Activision Blizzard
What are the pros and cons you should consider before investing in Activision Blizzard Inc.?
Pros
- Good chance of approval: While there are "yea" and naysayers on both sides of the fence, analysts state that there's a good chance that the Microsoft/Activision deal could eventually close.
- Brand appeal: Activision Blizzard Inc. has strong brand appeal. Its gaming consoles, handheld platforms and franchises are household names, including Call of Duty, Crash and Spyro.
- Should grow in the future: Once the primary pandemic years are behind us, people will continue to see gaming as a hobby — there's no question that the industry has a strong toehold despite the fact that right now, people are relishing being out of the house. Price increases will also contribute to the continuation of the industry's long-term growth.
Cons
- Downed sales: Activision Blizzard Inc. generated revenue of $1.644 billion in the most recent quarter of the year, which was down more than 28% versus the previous year's quarter. The company missed top-line estimates by $30 million in the first quarter. Part of the reason had to do with supply chain slowdowns and consumers not buying as much from each franchise, as well as interest rate changes. The company has faced year-over-year lowered sales over the past three quarters.
- No guarantees: The Microsoft deal isn't inevitable. Due to regulatory action, it's quite possible that Microsoft may not actually take over Activision Blizzard. Some lawmakers have even asked to put the takeover under the microscope due to accusations of both Microsoft and Activision Blizzard Inc. treating workers badly.
- Could lose money: It's possible to lose money if the Microsoft deal doesn't go through. If the stock continues to languish, you could face the downsides of owning a flailing stock.
Should You Buy and Hold Activision Blizzard Inc.?
So, should you buy and hold the company? If you're tussling with the idea of a purchase, not knowing whether Microsoft will scoop up Activision Blizzard Inc., keep in mind that you're still in an industry that has strong possibilities and consumers that aren't going to stop playing video games anytime soon. However, it's true that in 2022, you won't see incredible results from the company, due to inflation-sensitive consumers and more of a priority put on travel, going out to eat and spending time outside.
If you think of it as a flip of the coin, if Activision Blizzard gets taken over, it would lead to a possible more than 20% gain for individuals who have scooped up the stock. If the merger falls through, you're looking at a deep drop in the stock, even more than what owners of these shares have recently seen. Furthermore, it's also important to keep in mind that Activision Blizzard Inc. isn't without its competition. It can point to several competitors, including Netflix (NASDAQ: NFLX), Meta (NASDAQ: META) and Electronic Arts (NASDAQ: ERTS). Each has a lot of irons in the fire.
Keep focused on the positive: If you invest now, you're investing in an extremely healthy company and an arbitrage play may only give you even more fantastic options in the future.
