Is Microsoft's Acquisition of Activision Blizzard a Wise Move?

Microsoft's (MSFT 1.75%) announcement that it would be acquiring embattled gaming company Activision Blizzard (ATVI) took a fair share of investors by surprise. In this segment of Backstage Pass, recorded on Jan. 19, Fool.com contributors Rachel Warren and Danny Vena discuss.

Rachel Warren: It's no secret that Activision Blizzard, it's had its fair share of troubles lately. The company has been the subject of multiple legal investigations. There's been ongoing calls for the resignation of embattled CEO Bobby Kotick.

For anyone who is wondering, Kotick is expected to remain CEO of the company through the transition according to reports by CNBC. The Wall Street Journal has reported, however, that Kotick is expected to resign once the deal goes through. We'll see what happens there.

This $68.7 billion purchase by Microsoft is set to conclude in the company's fiscal 2023. That deal is set to be the largest deal in tech history.

Another landmark move by Microsoft. According to CNBC, and I quote, "The deal also plays into a long-term vision for Microsoft as it competes with Meta to build technologies to create a virtual world called the metaverse. In fact, Microsoft CEO Satya Nadella was the first big tech CEO to publicly acknowledge the value of the metaverse months before Meta CEO Mark Zuckerberg. 'Today, virtual worlds are dominated by gaming, but the hope is they expand to cater to other demographics and replace a lot of traditional social networking activity online'. Nadella said in a call on Tuesday, 'When we think about our vision for what a metaverse can be, we believe there won't be a single decentralized metaverse.'"

So the article says "that means Nadella sees an opportunity for many software makers to create many different virtual worlds in the future instead of one dominant company", aka Meta, controlling the metaverse. What do you guys think of this deal? The Wall Street Journal has said the acquisition could, "Power Microsoft's Netflix-of-gaming aspirations."

Is there another major acquisition that you think could be on the horizon in 2022? Danny?

Danny Vena: I think it's really interesting that they decided to say the Netflix of gaming. That sounds a little bit click-baity to me. That's just one Fool's opinion. I think this is a really good move for Microsoft. If you look at the success that they have had, maximizing subscriptions, look at what they've done with Office 365 and with TurboTax. Sorry, not TurboTax. [laughs] That was the wrong one. [laughs]

Rachel Warren: It's that time of the year, though. [laughs]

Danny Vena: I know I've got taxes on the brain. I'm an accountant, so that's how that goes.

Rachel Warren: I feel your pain.

Danny Vena: [laughs] But yeah, I mean, if you look at what Microsoft has done with 365, turned it into a subscription-based product and something that they're garnering these continuing revenue streams that will go on forever. Yeah, I actually have heard several of the news outlets mention the potential for the metaverse. Microsoft is certainly a company that has the resources to build out a presence.

I think that might be stretching it a little bit. I'm more like what Nadella said. I think that there's a lot of potential out there for the metaverse to be a lot of little things rather than one big thing. From the point of view of Activision, Activision had more than a decade of stellar growth. The stock went up ridiculous amounts, but that growth was already fading before the pandemic.

I think the problem with that is that the company was really dependent on those big boom and bust cycles of releasing these big new iterations of popular games. I think what Microsoft is most likely to do is find a way to turn these into subscriptions, which is something the company is really good at doing.

I think turning these assets into continuing revenue streams fits right in with what Microsoft as well. As far as what major acquisition could I see on the horizon for 2022, my crystal ball is in the shop.

I certainly would have not foreseen Activision being a takeout target. But that said, if you look at tech stocks, their values are down, their stock prices are down 50%from their highs in November. I mean, there's so many of them.

Roku is one example that I just recently wrote about. This makes these companies a lot more digestible to these big tech companies. I would be looking at any tech company that's down 50% or more as potentially being a takeout target.