🎮 Microsoft’s $70B meta-gaming gambit

Wednesday, January 19, 2022 by Robinhood Snacks |
Reviewing the subscription bills like [YinYang/E+ via Getty Images]

Reviewing the subscription bills like [YinYang/E+ via Getty Images]

[Anadolu Agency / Contributor via Getty Images]

[Anadolu Agency / Contributor via Getty Images]

Yesterday’s Market Moves
Dow Jones
35,368 (-1.51%)
S&P 500
4,577 (-1.84%)
Nasdaq
14,507 (-2.60%)
Bitcoin
$42,576 (+0.86%)

Hey Snackers,

Cobb salad, NFT on the side: The world’s first NFT restaurant only accepts nonfungible tokens to enter its exclusive dining room. Its $7.9K tokens sold out in hours — and are reselling for $300K. Leave the server a nonfungible tip.

Stocks fell across the board and the Nasdaq closed in correction territory, down 10% from its November record. The crypto market briefly slipped below $2T, a drop of nearly 50% from its high of nearly $3T in November. US mortgage interest rates climbed for the fourth straight week.

Meringues

Candy, crushed… Yesterday Microsoft announced plans to buy Activision Blizzard, which makes hits like World of Warcraft and Candy Crush, for about $70B — the largest all-cash acquisition in corporate history. For reference: Previously Microsoft’s biggest deal was its $26B LinkedIn purchase. Shares of Activision spiked 26% yesterday, after slipping 27% since California regulators sued the company over employee harassment in July.

  • Microsoft’s gaming biz is now the third largest in the world after Tencent’s and Sony’s. Microsoft’s existing gaming biz (think: Xbox, Minecraft) brought in $15B last year, and its Xbox Game Pass monthly subscription now has 25M subscribers.
  • Antitrust scrutiny is expected, but Microsoft is reportedly so confident the deal will close, it’s agreed to pay a $3B cancellation fee if it falls through.

When it games, it pours… Sales across the gaming industry boomed 27% during lockdown in 2020 and continued growing last year. Gaming revenues are forecast to jump from $180B in 2021 to $220B by 2024. And as gaming companies reach new sales levels, there’s been a flurry of consolidation: There were $117B worth of gaming acquisitions last year, and Grand Theft Auto maker Take-Two agreed to buy FarmVille creator Zynga last week for $12.7B.

THE TAKEAWAY

Games could be key to monetizing the metaverse(s)... As Microsoft races rivals like Meta (fka: Facebook) and Nvidia to build the first widely used metaverse, blockbuster games could help attract skeptics. Platforms like Fortnite and Roblox have already built massive followings and in-game virtual economies. CEO Satya Nadella said Activision “will play a key role” in building metaverse platforms for 3B global gamers.

Inferno

Don't look up... at your streaming bill. Netflix is raising prices for its 74M subscribers in the US and Canada across plans. The standard plan (aka: the most popular) is rising by $1.50/month to $15.50. The hike comes less than a year and a half after the Flix's last US increase.

  • Watch again: Netflix gained 36M subscribers in 2020 as we hibernated with laptops, ramen, and "Tiger King."
  • Next episode: That led to subscription saturation (#subscripturation) and slowing growth. Last quarter Netflix added fewer than 4.5M subs.

The real "Single's Inferno"... no one to share a Netflix password with. US-Canada subscribers make up more than a third of Netflix’s 214M subs. But in the second quarter Netflix lost US-Canada subscribers. The price hikes could add $1B+ in annual revenue to compensate for sluggish growth in the Flix’d-out market. As streaming competition #intensifies, Netflix is exploring other growth opportunities:

  • New products: Last year it launched a merch shop (think: "Emily in Paris" sunglasses). It also released games on its mobile app, including two based on "Stranger Things."
  • New markets: Netflix is doubling down on foreign content like “Squid Game” for international growth. Last month it slashed prices in India to $2.60 to compete with Disney and Amazon in the largest untapped digital market.
THE TAKEAWAY

Saturated customers pay for unsaturated growth… Netflix has become a cultural staple in the US. It’s betting you’ll shell out the extra $1.50/month to not feel left out while your coworkers talk “Cobra Kai.” While saturated markets give Netflix price power, unsaturated markets like India can give it growth power. Of India’s 1.4B people, only 5M are Netflix subscribers. Netflix is looking to India for its “next 100 million” — and it can afford to slash prices abroad by hiking prices at home.

What else we’re Snackin’

  • Swallow: Pfizer said its newly authorized Covid pill is effective at treating Omicron in lab tests — but supplies are scarce.
  • Miss: Goldman Sachs shares fell 7% after it said quarterly profit dropped from last year on disappointing trading revenue. It’s also been splurging on comp to retain stressed-out talent.
  • Slick: Exxon pledged to hit net-zero emissions on its operations by 2050. It's the last US oil giant to make a net-zero promise amid pressure from activist investors.
  • Yikes: AT&T and Verizon are delaying the rollout of 5G wireless services near some US airports after airlines warned the technology could cause "catastrophic disruption" for flights.
  • Subtle: An activist investor once again told Kohl's to shape up or sell the company, writing that its exec team is "incapable" of creating shareholder value — a month after a separate investor applied pressure.

Snack Fact of the Day

EVs sales in Europe beat diesel-car sales in December for the first time, but gas-powered cars still sold best of all

Wednesday

  • Earnings expected from: UnitedHealth, Bank of America, Procter & Gamble, Morgan Stanley, and US Bancorp

Authors of this Snacks own shares of: Microsoft, Netflix, Amazon, Disney, Zynga, AT&T, and Pfizer

ID: 1995744