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Microsoft-Activision Blizzard deal will have a ‘ripple effect across broader tech': Analyst

Wedbush Managing Director Dan Ives joins Yahoo Finance Live to discuss Microsoft's acquisition of video game publisher Activision Blizzard, the outlook for M&A in the tech sector, and the metaverse.

Video transcript

- Microsoft dropped a bombshell today, saying it would acquire gaming publisher Activision Blizzard for $68.7 billion in cash. The purchase comes as Activision Blizzard is embroiled in controversy around its internal culture.

Let's bring in analyst Dan Ives, over at Wedbush.

Dan, it's a big day for you, I would sure say. Look, what does this mean for the next 10 years at Microsoft, in terms of financial performance? Does it really boost their bottom line?

DAN IVES: Look, for Microsoft, I mean, cloud, Nadella has had the golden touch. And that's been obviously a key part of their success. Consumer has been on a treadmill. And there was definitely a huge appetite within Redmond to make a significant consumer acquisition. Then you combine Activision, it kind of checked every box-- streaming, gaming platform, as well as, obviously, the stock's been under massive pressure over the last few months. This is the right opportunity and, in my opinion, the right deal.

- Dan, as soon as I saw this deal-- and I keep thinking about this deal-- is the culture at Activision versus the culture at Microsoft, and the allegations that have come out, and the firings that Activision has done, linked to this harassment probe that has been ongoing, I got to ask why Kotick is-- why Microsoft is keeping him on, even if it's just a figurehead, even if it's just for a little while, with that kind of baggage attached to him.

DAN IVES: Yeah. I mean, look, I think that's definitely one of the topics investors are focused on. Because if you look at Nadella and the way that they've run Microsoft over the last decade, I mean, it's part of why they're in this position of strength. And obviously Activision has had the black cloud over their head.

And that's going to be something for Microsoft that they're going to need to navigate here. Because investors want to make sure culturally that it's a strong integration. They want to make sure that this is something that doesn't take Microsoft's eye off the ball at a time that competition is coming from all angles. But it definitely brings more scrutiny to Microsoft, in terms of how they handle this very hot button situation to the Street.

- Was it a mistake for them to keep him in that role?

DAN IVES: Well, I think that's something that-- I think investors, on one hand, they'll view it that he, Bobby, has been a key part of Activision's success to date. And he's a key part of the franchise. But then, on the other hand, if you look at Redmond, I mean, look what they did with LinkedIn. I mean, they integrated that, despite all of the worries about some of the departures. And LinkedIn's been a home run.

So my view, at Microsoft, is that you want to sort of clear the decks, in general, integrate this, make sure you keep key people, from a lot the engineers to gaming publishers. And I think that's going to be for them the balancing act. Because, for Microsoft, that's almost been the golden child of cloud. For Nadella, this was an aggressive acquisition. And it also comes at a time that regulatory scrutiny continues to be elevated, the most we've ever seen. And it's the biggest tech deal ever.

- Dan, does a deal like this push a Netflix, an Apple, to move more aggressively into gaming? And I'll lock in on Netflix here. There were reports that they were going to move more aggressively into gaming. We haven't seen it. And so far this month you've seen Take-Two buy Zynga. Now you've seen Microsoft acquire Activision Blizzard. And Netflix is still sitting there doing nothing.

DAN IVES: Yeah. I mean, I think this changes the whole game, in terms of Microsoft acquiring Activision. On the gaming side, when you look at Netflix, you look at Apple, you look at some other publishers-- also in the metaverse, I mean, I think this was a huge, aggressive metaverse-related deal, in terms of what Activision could play, in terms of over the coming years, in terms of their franchises. And I think this is going to have a ripple effect across broader tech, and not just on the enterprise side but especially on the consumer. This is going to catalyze what I view as a significant M&A spree.

But it also comes at a time that Facebook, Amazon, Apple, Google, you know, under massive scrutiny in terms of what they could acquire. So that's going to be another issue playing out in the Beltway and Brussels, is Microsoft, which has already been through their antitrust issues in the late '90s and 2000. Nadella kind of viewed this as a time to flex the muscles, where others have had their wings clipped.

- Well, should it be another time, Dan, for the likes of, let's say, a SalesForce, to flex its muscles on something like a DocuSign, or other software players more broadly, which have been smacked around over the past few months? You've seen that disappointment on results from a couple of months ago for DocuSign, but many others. And now you're seeing the software space has been hammered because of this rise in yields.

DAN IVES: Yeah, and Brian, that's a great point. And the one thing I would say is those retail and institutional investors in this risk-off environment, Fed tightening, white knuckles, strategics and financial buyers, a trillion dollars of dry powder cumulatively. So I think you're going to see an unprecedented M&A spree in 2022 for tech. It gets kicked off with Microsoft.

And I think this is going to have repercussions on enterprise, on cloud, on consumer, in terms of what they're doing. And that's why some investors might fret on some of the valuations they'll pay. But you look at a lot of these stocks, they're down 40%, 50% from highs. Activision is a good example. You know, obviously we know the reasons the stock has had that overhang. But Microsoft viewed it as, look, this was the golden opportunity to gain an asset that was unique.

- Dan, I want to go back to gaming for a second. And I've been skimming a new piece-- newish piece-- by Matthew Ball, who is a very closely watched tech writer and VC, a recent piece-- Seven reasons why video gaming will take over. And he says, why is everybody spending money on streaming? They should be spending money on gaming.

What are the other ways, do you think, the other best ways, to play this?

DAN IVES: I think, first of all, gaming is going to be the first piece of the metaverse in terms of the monetization. I think what many talk about, it's really about streaming. Because gaming is going to be purely about eyeballs monetization. And that's why it's a scarcity of assets.

So when you look at what Activision is today, and now making Microsoft the number three gaming provider in the world, this is something that's going to have repercussions across the landscape. And you're going to see a blending more of technology, gaming, and streaming. That's something that I believe is going to be a big trend in 2022.

- Dan, I think after all these years of talking to you, I never asked you this. Are you a gamer? Do you like any of these games?

DAN IVES: I mean, I do like Call of Duty. I'm more of a sports guy, in terms of Madden. Call me a traditionalist. But Brian, I think it just speaks to, demographically, gaming hits on an area of the population that's very rare. And that's what Microsoft is going after.

- All right, Dan Ives, liking those sports games. Always good to talk to you, bud. We'll talk to you soon.

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