What You Missed This Week in Video Games

Activision, Microsoft extend merger deadline date to October 18

“Game On” is The Fly’s weekly recap of the stories powering up or beating down video game stocks.

NEW RELEASES: 

Among this week’s notable new releases is the PC port of Sony’s (SONY) “Ratchet & Clank: Rift Apart.” The game, which originally released for PlayStation 5 in 2021, launches on PC July 26, 2023. Also out this week is “Disney Illusion Island,” a side-scrolling platform game developed by Dlala Studios and published by Disney Games (DIS). The title launches exclusively for Switch on July 28. In an exclusive interview with The Fly earlier this year, Dlala Studios CEO Aj Grand-Scrutton said the studio’s relationship with Nintendo (NTDOY) during development has been “fantastic.”

ACTIVISION/MICROSOFT: 

Last week, Activision Blizzard (ATVI) and Microsoft (MSFT) announced that they had extended the deadline to close their merger to October 18 from July 18. The updated terms of the agreement include an increase in the termination fee payable to Activision Blizzard from $3.0B to $3.5B if the transaction is terminated after August 29, 2023, and to $4.5B if the transaction is terminated after September 15, 2023. The move followed the U.K.’s Competition Appeal Tribunal agreeing to grant Microsoft and the Competition and Markets Authority time to negotiate over potentially gaining approval in the U.K.

Just a day after the announcement, Sarah Cardell, chief executive of the CMA, said in a Sky News interview that the regulator is still waiting on Microsoft’s final proposal for a restructured takeover agreement. “The ball is very much in their court at the moment,” Cardell said.

Meanwhile, the U.S. Federal Trade Commission suspended its in-house challenge seeking to block the takeover, according to media reports. The step is a win for Microsoft and Activision as they seek to close the largest-ever gaming deal despite regulatory challenges in the U.S. and the U.K., wrote Bloomberg’s Leah Nylen.

ACTIVISION EARNINGS: 

Along with the merger deadline announcement, Activision Blizzard reported second quarter results last week, with Q2 earnings per share and net bookings beating consensus estimates. “This quarter, our talented teams delivered strong performance for our players and shareholders. We delivered a 50% year-over-year increase in net bookings, operating income growth over 70%, earnings per share growth over 80%, and a record quarter for Blizzard with over $1 billion in net bookings for the first time,” said Bobby Kotick, CEO of Activision Blizzard. “Most importantly, we continue to set new standards of excellence for workplace culture and provide joy and connection to hundreds of millions of players around the world. While we continue to have concerns about the economy and growing industry competition, we remain focused on the long-term opportunities ahead and completing our merger with Microsoft.” Additionally, the company said it still expects at least high-teens revenue growth in 2023.

TENCENT/TECHLAND: 

Video game maker Techland, the developer and publisher of 2022’s “Dying Light 2: Stay Human,” announced a partnership with Tencent (TCEHY), who is in the process of becoming Techland’s majority shareholder. “Teaming up with Tencent will allow us to move full speed ahead with the execution of the vision for our games,” said Techland CEO Pawel Marchewka. “We have chosen an ally who has already partnered with some of the world’s finest video game companies and helped them reach new heights while respecting their ways of doing things. We will retain full ownership of our IPs, maintain creative freedom, and continue to operate the way we believe is right. I’m also going to continue serving as the studio’s CEO.”

EA PT HIKES: 

Ahead of its upcoming quarterly report, multiple analysts raised their price targets on Electronic Arts (EA). Credit Suisse analyst Stephen Ju increased the firm’s price target on the shares, believing the game maker is entering a larger product development cycle and 2024 should mark trough EPS. The analyst added that the firm expects EPS to rise – the path may not be linear given the potential for shifting release dates but the value creation cycle should be the same and thus informs the firm’s DCF-driven price target.

Meanwhile, Benchmark analyst Mike Hickey raised the firm’s price target on Electronic Arts. The “most substantial incremental catalyst in the quarter and fiscal year,” “Star Wars Jedi: Survivor,” has surpassed the firm’s initial expectations and should drive growth upside in the quarter, the analyst tells investors. However, the firm is “tempering our optimism for meaningful upside on EA’s FY24 growth guidance” given the exceptional performance of FIFA 23 during the last fiscal year as it benefited from the World Cup’s engagement during the holidays.

Additionally, Stifel boosted the firm’s price target on Electronic Arts, forecasting a “strong start to the fiscal period” and noting that its estimates for non-GAAP EPS and net bookings position its expectations “slightly ahead of the Street and at/above the top-end of guidance.” However, the firm said it is not anticipating any changes to FY24 guidance with this update.

OTHER STORIES TO WATCH:

• Blizzard will add a selection of games to Steam, starting with “Overwatch 2” on August 10 [read more]
• HSBC initiated coverage of Take-Two (TTWO)   [read more]
• Nintendo’s “Pikmin 4” reached first place in the U.K.’s weekly boxed charts, Gamesindustry.biz reports [read more]
• Square Enix (SQNXF) told IGN that “Final Fantasy 16” initial sales are “extremely strong” [read more]
• Capcom (CCOEY) said that the recent “Resident Evil 4” remake has sold over 5M units worldwide [read more]

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Originally Posted July 25, 2023 – What You Missed This Week in Video Games