The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Whether it is acquiring Activision Blizzard or planning to expand its investment in the cloud business, what variables can Microsoft bring in the future?

When it comes to Microsoft, it’s a household name around the world through its Windows operating system and its flagship game console, the “Xbox”. The company jumped into gaming early and was the first to monetize its “Game Pass” subscription model. With its recent acquisition of Activision, the company may be planning a foray into the Metaverse.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Whether it is acquiring Activision Blizzard or planning to expand its investment in the cloud business, what variables can Microsoft bring in the future?

Activision dominates the gaming industry

Microsoft’s acquisition of Activision has become a hot topic, creating buzz around the company’s ambitions in the gaming market. The deal, expected to close in the second half of 2023, is the largest all-cash acquisition not only for Microsoft but the gaming industry to date, with an enterprise value of about $69 billion at $95 per share, making it the largest before Acquisitions pale in comparison (LinkedIn is worth about $26 billion).

Obviously, in relative size, the acquisition represents only 3.3% of Microsoft’s total market value of $2.14 trillion. However, Microsoft is already a major player in the gaming space, and the addition of Activision creates synergies, provides greater operational efficiency and a strategic competitive advantage, and helps tap into the untapped Metaverse market.

The acquisition underscores the company’s ambitions to enter the gaming market. Since the launch of the Xbox in 2001, its market share in the gaming space has been growing over the past 20 years. Additionally, the company has aggressively expanded its gaming business since acquiring Minecraft creator Mojang in 2015. That followed with the launch of Xbox Game Pass in 2017 and the acquisition of ZeniMax Media, the parent company of Bethesda Game Studios, last year.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Microsoft’s growing gaming ambitions (Source: statista.com)

Those investments account for a large chunk of the nearly $180 billion video game industry, resulting in the company’s gaming segment accounting for nearly 11% of total revenue. According to Statista, Microsoft dominates the gaming network market, with a whopping 50 percent market share in the United States. By comparison, Reuters reported that the tech giant had a 10.7 percent share of the global gaming market after the Activision acquisition.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Global Video Game Market Value 2020-2025 (Source: statista.com)

Microsoft’s Game Pass subscription costs $10 or $15 per user per month, and the company has more than 25 million subscribers and averages $3.75 billion in annual revenue. Also, mobile gaming isn’t one of Microsoft’s strong suits, and Activision’s control of King/Candy Crush gives the company a strong gateway into that market.

With the company’s latest acquisition, Microsoft’s market share and growing gaming revenue will grow rapidly with Activision’s additional 400 million-plus monthly active players. This will make Game Pass one of the most compelling and diverse gaming content matrices in the industry, further cementing the company’s strong moat.

Stepping into the Metaverse with Mesh and HoloLens 2

Microsoft’s “Mesh” will be released in the first half of 2022. The Azure-based software will allow people to connect via HoloLens 2, mixed reality (MR) headsets, smartphones, tablets or PCs and collaborate as holographic presences. Mesh will leverage Microsoft’s office-based customer base as it will integrate with Office 365 as a virtual project-sharing space as an extension to Microsoft Teams. Over time, Microsoft plans to integrate Mesh into other applications and make the Metaverse mainstream. Financial information related to Mesh has not been released, so a precise analysis could be a long time. Still, the impact of Mesh is expected to resonate across the industry.

To quote Microsoft CEO Satya Nadella, “Games are the most dynamic and exciting category of entertainment on any platform today, and will play a key role in the evolution of the Metaverse platform.”

Microsoft plans to use Activision’s platform to infiltrate Metaverse, he said in a press release on the company’s acquisition of Activision. Considering that the concept of Metaverse has not been clearly defined, frontrunners including Microsoft will be the first movers of the Metaverse.

The company’s direction and vision is obvious, as Satya Nadella said in an interview with Bloomberg, “If you think of Halo as a game, it’s a Metaverse. Also, Minecraft is a A Metaverse, ‘Flight Sim’ as well. In a sense, they’re 2D today, the question is: Can it be brought to a fully 3D world now? We plan to do that.”

Unsurprisingly, the partnership with Activision could do just that, as the company’s “World of Warcraft” role-playing game also includes an extensive virtual world where users can play as avatars and buy virtual goods like pets.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Source: Microsoft

Step up progress to expand cloud business

Investors have applauded the CEO, who has transformed Microsoft into a formidable cloud computing company since taking over in 2014. The Azure segment is now a core segment and is experiencing strong growth in 2021, with year-over-year growth of up to 32%. More than just a cloud service, Azure has also developed AI, BI and IoT platforms that are expected to drive growth in the coming years.

Microsoft’s second-quarter 2022 revenue of $51.7 billion and EPS of $2.48 again beat analysts’ estimates of $50.88 billion and $2.31, respectively, representing a year-over-year increase of more than 20%. Revenue from the company’s cloud computing segment accounted for more than 35% of total revenue at $18.3 billion, up 26% year over year and outpacing overall revenue growth. Additionally, revenue from Azure and other cloud services grew nearly 46% in Q2 2022, 50% in Q1 2022, and 51% in Q4 2022. This marks a significant growth in the company’s cloud computing business.

According to Gartner, the global cloud computing market is expected to grow by about 19.6%, from $332.2 billion in 2021 to $397.5 billion in 2022. McKinsey reports that the cloud computing market is expected to reach $1 trillion by 2030. This strongly supports the company’s growth and prospects for the next decade.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Global end-user spending forecast for public cloud services (source: gartner.com)

Microsoft Azure is second only to Amazon’s Amazon Web Services (AWS) and has an 18% market share in the global cloud computing market. However, some argue that these numbers do not really reflect objective reality, as Microsoft has services in many areas of cloud computing that AWS does not cover, for example, its SQL division offers more services that are not considered by market share consensus in the case of. Therefore, comparing only in areas where the two go hand in hand does not paint the full picture. Ten years from now, the Azure segment will be the main growth driver, with operating margins expected to improve slightly as it accounts for the majority of overall revenue.

The left-hand acquisition of Activision to enter the Metaverse, the right-hand expansion of the cloud business, Microsoft finds a new growth engine?

Cloud Computing Statistics (Source: s.financesonline.com)

Wall Street analysts are bullish on the stock, with an average consensus price target of $372, up nearly 30%. The company’s cloud computing division played a major role in these positive sentiments. According to Piper Sandler analyst Brent Bracelin, Azure has outperformed Windows and is now on track to overtake Office as the company’s largest revenue generator in 2022.

Likewise, Bank of America analyst Brad Sills wrote: “Driven by the combination of the Azure cloud infrastructure platform, continued adoption of the cloud-based Office 365 productivity suite, and more lucrative gaming and Game Pass revenue in Xbox, Microsoft has done Get ready for sustained low double-digit growth over the next 3-5 years.”

After the pandemic, the demand for cloud computing has grown rapidly. Microsoft already has a large customer base that includes enterprise customers using its productivity software and data management solutions. As these customers move to the cloud, they prefer to stick with the same vendor rather than switch to a new one. Because Microsoft doesn’t release its Azure separate data separately, but instead consolidates it across the “intelligent cloud,” it’s hard to predict the exact impact this might have on financial statements. However, market sentiment remained positive.

in conclusion

Microsoft remains one of the strongest players in the tech industry, offering a wide range of products in multiple areas.Microsoft’s intensive future moves will lead to positive growth, and these strategies revolve around the expanding gaming market, the upcoming Metaverse, and the accelerating cloud computing market.

While Microsoft Azure is the runner-up in cloud computing, impressive growth metrics in recent quarters underscore its serious threat to the market leader. Also, it remains to be seen how the recent Activision acquisition will play out in the long run, but there is still hope.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/the-left-hand-acquisition-of-activision-to-enter-the-metaverse-the-right-hand-expansion-of-the-cloud-business-microsoft-finds-a-new-growth-engine/
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