Metasoft? Microverse? Both have quite a nice ring to it. While Microsoft (MSFT) surely won’t be changing its name to either, Piper Sandler’s Brent Bracelin thinks the company’s latest move represents its entry into the “consumer metaverse arms race.”
It is simply too big an opportunity to ignore, and by the looks of it the company is fully aware of the potential following the announcement of the largest acquisition in its history.
On Tuesday, Wall Street was taken a back with the news Microsoft will buy mired in controversy gaming giant Activision Blizzard for a cool $68.7 billion in cash.
Not only does the deal position Microsoft right at the center of this newfangled industry, but Bracelin believes it has the potential to “elevate its footprint in gaming and advertising into a $40B+ combined segment by CY23.”
Microsoft has a smaller product portfolio within the consumer technology sector, and as such, Bracelin thinks the acquisition will “strengthen its foothold” in the segment. ATVI brings with its 10K+ workforce 400 million monthly active users, and a leading gaming franchise that is nearing annual revenue of $10 billion, all providing Microsoft with “attractive strategic value.”
Strategic benefits aside, Braclein notes that ATVI’s estimated free cash flows of over 3 billion amount to a “higher cash yield than it would otherwise attain by holding this outsized cash position on the balance sheet.”
But it’s not only the gaming opportunity here. There are a “variety of monetization channels” involved too, including subscriptions, in-app purchasing and advertising. The latter especially important.
“Considering the advertising industry is 3-4x larger than the gaming industry,” the 5-star analyst explained, “We are equally bullish on the long-term opportunity for share gain potential in advertising and gaming as the Activision Blizzard-King content is repurposed across cloud, mobile, AR/VR, and the metaverse.”
Although Bracelin notes the “increasing integration and execution risk,” the analyst views the transaction as a positive one and “would look to add to positions on weakness.”
Based on the above, Bracelin rates MSFT an Overweight (i.e. Buy) along with a $352 price target. The implication for investors? Upside of 15% from current levels. (To watch Bracelin’s track record, click here)
Overall, there are 26 analyst reviews on record, and barring one skeptic, all the rest say Buy, providing MSFT stock with a Strong Buy consensus rating. The forecast calls for 12-month gains of 22%, considering the average target clocks in at $375.12. (See Microsoft stock forecast 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.
