Microsoft could become the 'Netflix of gaming,' says Morgan Stanley

Published Fri, Apr 2 20212:00 PM EDTUpdated Fri, Apr 2 20212:42 PM EDT

Key Points

With 18 million Game Pass subscribers, more than 100 million Xbox Live monthly active users, and reported talks to acquire Discord, Microsoft could soon become the "Netflix of gaming," say analysts at Morgan Stanley.
"Microsoft not only could get an additional higher-margin, recurring revenue stream, but also a gaming franchise that is both accessible and extensible," the analysts wrote.

With some 18 million monthly subscribers to its Game Pass service, Microsoft is on its way to becoming the "Netflix of gaming," according to Morgan Stanley. Morgan Stanley rated the software giant overweight and gave it a price target of $290 a share. Microsoft's share price was $242.35 when the market closed on Thursday, popping more than 2% that day. The analysts wrote in a note published Thursday that they are focusing on the tech giant's "three C's": content, community and cloud. In the "content" category, the analysts cite Microsoft's recent $7.5 billion acquisition of ZeniMax Media, the parent company of video game giant Bethesda, which greatly expanded its catalog of games accessible to its users via its various gaming platforms and services. Under "community," the analysts note that Microsoft currently has more than 100 million monthly active users for its Xbox Live subscription service, which provides access to online multiplayer features and other offerings. Meanwhile, its 18 million Game Pass subscribers are paying a monthly fee for access to a catalog of over 100 titles. Finally, in the "cloud" category, the analysts cite tech giant's cloud platform Azure, and PlayFab, a back-end platform for live games. "Going forward, we think Game Pass only becomes more compelling as Microsoft continues to amplify the existing gaming catalogue, as seen through the ZeniMax/Bethesda acquisition," the analysts wrote. "Of course, all of this is built on top of and supported by the Azure platform, serving as important proof points in Microsoft's cloud strategy," they said. Reported talks on Discord Microsoft is reportedly in talks to buy Discord, a chat app, for more than $10 billion, according to Bloomberg . Such an acquisition would bolster Microsoft in the "community" category, Morgan Stanley analysts said. Discord has about 140 million active users per month. "While the reported potential price tag of $10 billion would represent Microsoft's second largest acquisition in company history (following LinkedIn at $26.2 billion), we note that a potential acquisition would bring over a highly attractive user base," the analysts said. — CNBC's Michael Bloom contributed reporting.

Game enthusiasts and industry personnel walk between the Microsoft Xbox and Sony PlayStation exhibits at a trade show.

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With some 18 million monthly subscribers to its Game Pass service, Microsoft is on its way to becoming the "Netflix of gaming," according to Morgan Stanley.