Key investment points
Event: according to Microsoft's announcement, the company will acquire Activision Blizzard, the world's leading game developer and publisher, at a price of US $95 / share, with a total value of US $68.7 billion in all cash transactions (including Activision Blizzard's net cash). This acquisition will further increase Microsoft's market share in the fields of mobile, PC, host and cloud games, and contribute to the establishment of its metauniverse. Satya NADELLA, CEO, said that the game will play a key role in Microsoft's metauniverse platform. After the completion of the transaction, Microsoft will become the world's third largest game company in revenue, second only to Tencent and Sony. The transaction also needs to complete regulatory review and the approval of Activision Blizzard shareholders, which is expected to be completed in fiscal 2023.
1) prospect of cloud games - general trend and direction. The announcement mentioned the global popularity of mobile games. 95% of players around the world are playing mobile games. Microsoft and Activision Blizzard hope that through technical investment, players can experience halo, Warcraft and other masterpieces anytime and anywhere. At present, players can play 3A games on mobile phones in the LAN through streaming technology. However, in the external complex network environment, in order to obtain a good cloud game experience, we still need to wait for the maturity of network infrastructure and cloud rendering technology. We believe that there may not be a distinction between so-called mobile games, PC games and host games in the future. Instead, cross platform 3-terminal interworking cloud games will be used.
2) value recognition of IP - regardless of presentation form and platform. After this acquisition, Microsoft will acquire several well-known IPS under Activision Blizzard, including Warcraft, Diablo, call of duty, watchman, StarCraft and candy smash legend. We believe that no matter how the technology progresses, how the display mode changes, the core bottom layer or high-quality content, IP with a large audience is undoubtedly at the top of the content pyramid, and the embodiment of IP value is not limited by any display form and equipment. Therefore, even in the meta universe era of virtual reality integration, companies holding core IP content are still one of the most valuable investment targets.
Promotion of hardware devices and subscription members - content driven, collaborative cloud game business. After the acquisition of Activision Blizzard, the exclusive capacity of Xbox will be greatly increased. On the one hand, it is conducive to hardware sales, on the other hand, it will also promote the subscription of Xbox gamepass. At present, more than 25 million players worldwide have subscribed to XGP. If Activision Blizzard has nearly 400 million live players in 190 countries / regions, we expect to greatly increase the number of XGP subscriptions, and the popularity of subscription mode, It will also promote the promotion of cloud games.
Valuation of head game companies - undervalued repair. The purchase price is US $68.7 billion. According to Activision Blizzard's 2020 profit, the corresponding PE is 31x, and according to PE (TTM), it is 26x. At present, the valuation level of Chinese head game companies is underestimated compared with the valuation of this acquisition, and this acquisition is expected to drive the revaluation of Chinese head game companies.
Investment suggestions: it is recommended to focus on A-share head game companies G-Bits Network Technology(Xiamen)Co.Ltd(603444) , Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , Perfect World Co.Ltd(002624) , Hong Kong stock Tencent holdings and netease-s.
Risk tips: 1) policy supervision continues to be tightened; 2) The release of version number is delayed and the product is delayed.
