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NEWS Crypto Weekly
Microsoft: All Eyes on the Metaverse Arena By Marty Shtrubel
M
etasoft? Microverse? Both have a pretty nice ring to it. The company is not likely to change its name either, but Piper Sandler's Brent Bracelin thinks the move represents Microsoft's entry into the "consumer metaverse arms race." It is simply too big an opportunity to ignore. After the announcement of the largest acquisition in the company's history, it seems that the company is fully aware of the potential. On Tuesday, Wall Street was taken aback 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 also a "variety of monetization channels" involved, including subscriptions, inapp purchasing, and advertising. Those are the most important. "Considering the advertising industry is 3-4x bigger than gaming," the 5-star analyst said, "we are equally bullish on the opportunity for share gains in both advertising and gaming as 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." Bracelin rates MSFT an Overweight (i.e. Buy) along with a $352 price target based on the above. The implication for investors? 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. Tip Ranks
January 2022 | Volume 11
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