After Microsoft's record Activision Blizzard deal, analysts say these video game stocks could be the next targets

Published Fri, Jan 21 20225:48 AM ESTUpdated Mon, Jan 24 20224:44 AM EST

It's not every day you see a near- $70 billion takeover deal in the headlines, but Microsoft set the bar high with its plan to buy Activision Blizzard . Here, analysts share their thoughts on which video game firms could become the next M & A targets. This is not the last we've seen of consolidation in the $180 billion video game industry, according to analysts. Tech titans including Microsoft , Meta (Facebook), Google , Amazon , Apple and Netflix are spending huge amounts of cash to capitalize on the growth of gaming in the coronavirus pandemic. And investors don't anticipate the stream of high-profile mergers and acquisitions in the space will slow down anytime soon. From Take-Two's almost $13 billion acquisition of Zynga , to Netflix breaking into gaming with a deal to buy a small video game studio called Night School Studio, dealmaking in the sector looks set to reach new heights in 2022. "It's safe to say that 2022 will be a big year when it comes to M & A activity — and we're just getting started," Adrian Montgomery, CEO of Canadian games media company Enthusiast Gaming , told CNBC. So who will be the next big M & A target in gaming? It's the multibillion-dollar question. Here's what analysts are saying. Content is king After Microsoft's announcement Tuesday that it will purchase Activision for a record $68.7 billion , shares of several top game publishers got a boost, as speculation over the next potential takeover target grew. Electronic Arts rose almost 6%, while Take-Two was up 1%. In Europe, France's Ubisoft surged nearly 12% and Poland's CD Projekt gained around 2%. Analysts say the key thing that potential buyers will be looking for is content. To quote an old adage from Microsoft co-founder Bill Gates: " Content is king ." It's a crucial part of Microsoft's thinking — the company is seeking new first-party Xbox titles to convince people to buy its gaming subscription products. Michael Pachter, managing director of equity research at Wedbush, said he thinks Ubisoft is among the potential firms vulnerable to a takeover approach. "They have good franchises and a long history," he told CNBC by email. EA is a "good candidate," but its "concentration of sports titles" could make it more difficult for a company to acquire, Pachter said — EA is known for its popular FIFA soccer games and the Madden NFL football franchise. "The license agreements would probably reset upon change of control," he explained. However, Neil Campling, global tech, media and telecom analyst at Mirabaud Securities, thinks this could make EA a prime target for a company like Disney , which already has a foothold in sports media with its ESPN division. "Just imagine if Disney could combine ESPN with all the virtual versions of the sports?" Campling said. The company could also integrate gaming and sports into its Disney+ streaming platform, he added, and Disney and EA have already collaborated on a number of "Star Wars" titles. Meanwhile, Netflix could be interested in buying Bandai Namco , according to Campling. The Japanese studio is known for major franchises including Pac-Man, Tekken and Dark Souls, and owns the video game rights to Dragon Ball Z. It's also set to release a fantasy game co-produced with the creator of Game of Thrones, George R. R. Martin, called Elden Ring. "All of these properties would fit nicely into Netflix as we see it," Campling said. There has also been industry speculation about whether Square Enix , another Japanese gaming firm, could be bought out by a larger rival , such as Sony or Microsoft, though the company previously pushed back on reports it had received M & A interest. Targeting the masses with the 'metaverse' There's also Roblox , the game creation platform, which analysts believe is a key player in the " metaverse " — a concept companies like Microsoft and Facebook parent company Meta are trying to bring to life. Piers Harding-Rolls, head of games research at Ampere Analysis, said Roblox's $44 billion market value means it may be too pricey for another company to buy. "You'd have to bet on smaller deals rather than something like a Roblox," he said. As for who could be a potential buyer, Harding-Rolls said: "At the smaller end it could be a cross-section of companies including pure-play games companies. At the $20 billion upwards range, I think you're looking at the biggest tech companies." Mike Proulx, vice president and research director at Forrester, said the Microsoft-Activision Blizzard deal shows how large corporations are waking up to the size of the video game sector. "We're seeing companies increasingly eye the gaming space as a future proofing strategy," he said. With the metaverse, companies are looking to target the masses with their vision for a virtual world in which users can work, play and interact with each other, according to Proulx. Data from Forrester shows that 36% of online adults in the U.S. played games in their spare time in 2021, while for the Gen Z audience the number was much higher, at 60%. "It's not just about gaming anymore, it's about immersive entertainment — and that's the real appeal to a more mass audience."

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard's games characters.

Dado Ruvic | Reuters

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