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Why Activision Blizzard Stock Jumped Today

What happened

Microsoft (NASDAQ: MSFT) is buying top video game maker Activision Blizzard (NASDAQ: ATVI) in an all-cash deal worth $68.7 billion. This will bring some of the industry's biggest gaming properties together under one corporate roof, marrying Activision Blizzard's popular Call of Duty franchise to Microsoft's top titles like Gears of War and Halo.

The news sent Activision Blizzard's share price up as high as $86.90 Tuesday morning. As of 11:35 a.m. ET, Activision stock was up 27%, while Microsoft's share price was down 1.5%.

Image source: Microsoft.

So what

The gap in Activision's current trading price of $83 against the buyout offer of $95 suggests that the market expects some difficulty in the deal receiving regulatory approval. This is something to keep an eye on in the near term.

Indeed, this is a monster deal that sends shockwaves throughout the increasingly competitive video game industry. If approved, the acquisition would make Microsoft the third-largest video game company in the world by revenue, trailing only Chinese tech giant Tencent Holdings and Sony.

Now what

Microsoft is obviously excited about what this potentially does for Xbox Game Pass, which is competing with other established players like Alphabet's Google Stadia and Sony's PlayStation Now for subscribers as the gaming industry shifts to a subscription model.

The addition of Activision Blizzard will add nearly 400 million monthly active users to Microsoft's gaming business. Microsoft disclosed that Xbox Game Pass now has 25 million subscribers. The addition of Activision's Call of Duty, Starcraft, Overwatch, Diablo, and Tony Hawk, among many other titles, will no doubt attract more subscribers to Game Pass once the deal is completed, which is expected in fiscal 2023.

Moreover, Microsoft CEO Satya Nadella sees an opportunity to bolster the company's role in the metaverse. "Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms," he said.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns Activision Blizzard and Microsoft. The Motley Fool owns and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Microsoft, and Tencent Holdings. The Motley Fool has a disclosure policy.


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