Jan 20, 2022
The stock market is having a rough start to 2022, but that doesn’t mean every ticker is in the doldrums.
Video game giant Activision Blizzard, for instance, saw a nice 25% pop Tuesday on news that Microsoft agreed to acquire it in an all-cash deal valued at $68.7 billion.
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The deal would add Activision Blizzard’s popular game franchises — such as World of Warcraft, Call of Duty and Candy Crush — to Microsoft’s portfolio.
It would mark Microsoft’s biggest acquisition to date, more than twice as large as its $26.2 billion purchase of LinkedIn in 2016.
The news comes just one week after Take Two Interactive — the maker of Grand Theft Auto video games — said it would acquire mobile games specialist Zynga for $12.7 billion.
But are there other potential takeover targets in the space? Spiking interest in gaming coupled with the growth of the metaverse has triggered investor expectations for more deals.
So here’s a look at two stocks that could be acquisition targets for deep-pocketed tech gorillas.
Electronic Arts (EA)
Just like Activision Blizzard, Electronic Arts is deeply entrenched in the video game industry. The company develops games for personal computers, gaming consoles and mobile devices.
Founded in 1982, EA has a portfolio of established franchises, such as Battlefield, The Sims, Need for Speed, and soccer franchise FIFA. In the company’s fiscal 2021, it brought in $5.6 billion of revenue.
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And things have continued to improve in 2022. In Q2, ended Sept. 30, 2021, net bookings — the net amount of products and services sold — totaled $1.85 billion, representing a 103% increase year over year.
EA is also returning cash to investors. It repurchased 2.3 million shares for $325 million during the September quarter and currently pays a quarterly dividend of 17 cents per share.
EA shares rose about 2.5% Tuesday after the Microsoft-Activision acquisition news, on speculation that the company’s large user base could be attractive to big tech who want in on the gaming action.
In the first six months of EA’s fiscal 2022, approximately 100 million players across all platforms engaged with its global soccer franchise. The company’s mobile game Star Wars: Galaxy of Heroes has surpassed 100 million players life to date.
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Roblox (RBLX)
Roblox enables users to spend hours playing games in block-based worlds. It also allows creators to get paid through an in-game currency called Robux.
The company went public in March 2021 through a direct listing and closed at $69.50 on its first day of trading. Shares surged to over $140 apiece in November, but they weren’t able to continue that upward momentum.
At the time of this writing, Roblox stock trades at $76.22 per share — a pullback of over 45% from its peak.
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While the stock had a rollercoaster ride, the company’s business was growing rapidly.
In Q3, the platform had 47.3 million average daily active users, up 31% year over year. Revenue rose 102% year over year to $509.3 million.
Engagement is where Roblox stands out.
“We’re very pleased that during the third quarter, people of all ages from across the globe chose to spend over 11 billion hours on Roblox,” said CEO David Baszucki in the latest earnings press release.
One of the reasons behind the platform’s success is its ability to attract developers. Roblox said that the developer community earned over $130 million in Q3 and was on track to earn more than $500 million for the full year.
Roblox is already a big company commanding a market cap of over $44 billion. But in today’s world, there are mega-cap tech giants with enough cash to put Roblox on their shopping list.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
