Microsoft's Acquisition of ZeniMax Media for $7.5 Billion Looks Like a Good Buy

Javier Frausto & Jacques Potts

On Monday, we learned that Microsoft (MSFT) plans to acquire ZeniMax Media, the parent company of game developer Bethesda Softworks, for $7.5 billion in an all-cash deal. The juggernaut will look to increase their market share in the gaming industry.

Microsoft is uniquely positioned to address the future of gaming with this acquisition. Microsoft’s user base has increased throughout the current pandemic causing more people to engage with its content. The Xbox Series S and X are going on pre-order today, making this partnership one of the deciding differences between the software ability of Sony and Microsoft. 

Not only does Microsoft get access to the popular content that ZeniMax produces (Elder Scrolls, Fallout, Doom, and Dishonored), but they ultimately have the ability to boost their subscription services profile to ensure that more customers register for Game Pass.

This deal will strengthen Xbox’s Game Pass and Microsoft’s Cloud Gaming Service. Games are the main driving force fueling the new cloud-gaming service, the Xbox Game Pass. The addition of game franchises like Elder Scrolls, Fallout, Doom, and Dishonored will increase the number of creative studios owned by Microsoft to 23 from 15. Chief Executive Officer, Satya Nadella mentioned that “Gaming is the most expansive category in the entertainment industry, as people everywhere turn to gaming to connect, socialize and play with their friends.” Between the ZeniMax deal and the addition of Electronic Arts (EA) Play to Xbox Game Pass, this past month, Xbox has made some serious additions to their Game Pass.

Deutsche Bank analyst Taylor Mcginnis is pleased with the acquisition commenting in a research report that “along with Bethesda, this deal includes the purchase of 7 other game studios under the parent company ZeniMax, which will importantly produce games that support and strengthen Microsoft’s subscription cloud-gaming service called Xbox Game Pass. These studios will bring exclusive hits and content to Game Pass, making it more valuable, and highly anticipated games (like Bethesda’s Starfield) could be made available in Game Pass the same day they are released on Xbox or PCs”.

Credit Suisse analyst Brad Zelnick is also bullish on the acquisition. Zelnick is impressed with the aftermath of how Xbox Game Pass is going to be revamped with a stream of new games in the library. He stated that “Microsoft’s gamer base, technology, monetization capabilities, and financial capital will enable ZeniMax to adapt its leading content to broader new gaming paradigms. And new content virtuously accrues to Microsoft’s gaming platform value. Importantly, we see maintaining ZeniMax’s independence and retaining its talent as ingredients of success which MSFT has demonstrated very keenly in prior deals”.

We believe these deals will work in favor of Microsoft. The addition of the gaming franchises will gain even more attraction from the younger audience. This Microsoft-Bethesda deal may also become a stepping stone for other game developers like Take-Two Interactive (TTWO) and Electronic Arts (EA) to make a similar deal with companies like Microsoft, Sony, or Nintendo.

Microsoft and Take-Two Interactive are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.

Disclosure: At the time of publication, we are long Microsoft. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article. 

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Comments (7)
No. 1-4
AlexM5
AlexM5

Smart move from microsoft

Emmanwo8
Emmanwo8

Can't wait to see how everything plays out!

jeehoyun
jeehoyun

Microsoft is the quintessential long stock I swear

kperkins2
kperkins2

Microsoft has big things in store for the future!