Why did Microsoft spend $68.7 billion on Activision Blizzard, a video game giant?
Hope Cochran is the managing director of madrona venture capital group, a Seattle venture capital company. He has a unique position to consider this issue. First, a major focus of her investment is the game company. For example, she led madrona’s investment in rec room in Seattle and is a member of the board of directors of VR game company.
But she also had direct insight into an integral part of the deal from her past role: Cochran was previously the CFO of candy crush and other mobile game maker King digital. In 2014, she led King’s IPO. In early 2016, Activision Blizzard acquired king for $5.9 billion.
“Games have become an integral part of all aspects of our lives,” Cochran said in geekwire’s podcast. “Activision has a huge treasure house of assets, which can really make Microsoft a giant in the game industry.”
In addition to its own game development work, Microsoft has a solid position in Xbox game consoles, windows computer games and subscription games through its game pass service. However, mobile platform has always been the weakness of the company, and games are no exception.
Phil Spencer, the new CEO of Microsoft games, made it clear this week that for this reason, Kim is one of the most striking parts of the deal.
“Mobile phones are the largest category of games,” Spencer said in a call with investors. “This is an area we have never been involved in before. This transaction has added one of the most successful mobile publishers to Microsoft games. I personally look forward to learning from King’s innovation team.”
Other potential benefits include strengthening Microsoft’s position in metaverse in the future. Cochran points out that games, metauniverse and media are converging. By strengthening its game business through a deal with Activision, Microsoft can gain a competitive advantage from traditional media companies.
She said that Activision also brought a large number of creative and business talents. She pointed out that the game industry was one of the first industries to adopt new technologies and business models. “You’ll get a lot of interesting strategic ideas and ideas, as well as an employee base, because they’re really trying new things,” she said.
What is the biggest risk? In the short term, this is the possibility of a lengthy regulatory review. Bobby Kotick, CEO of Activision Blizzard, estimated that the acquisition may be completed in June 2023, waiting for regulatory approval. Living on this edge “feels really long,” Cochran said
Activision Blizzard’s acquisition of king is much smaller, but in contrast, it took less than four months from announcement to completion.
“It was always difficult to run a company at that time,” Cochran said. “You have agreed to merge. You are trying to maintain the independence of the company and are still pursuing a strategy and plan. You just want to keep your employees focused. So this is just a difficult moment.”
In addition, the misconduct of Activision Blizzard is also common, and the culture created by Kotick as a company leader has also been questioned. Cochran talked about the bigger problems facing the entire game industry in treating and portraying women.
“I’m glad to see Activision’s boldness and let these people speak boldly and make statements, because I really think this is something that needs to be changed,” she said.
An interesting aspect of the deal is that the share price of Activision fell by more than 30% in the dispute a year before Microsoft announced its acquisition. This created space for Microsoft to close the deal at a premium of 45% higher than the share price of blizzard on January 14.
Cochran said that the acquisition price will translate into 7-8 times of revenue, which is a significant multiple, but it is important to remember that Activision Blizzard is “a very profitable business”. For example, in the first nine months of 2021, Activision Blizzard released more than $2.2 billion in profits with $6.6 billion in revenue.
“It’s a waste of cash. I like to be king’s CFO because a lot of my conversations are about how to use the cash. As CFO, it’s a great conversation,” Cochran said. “So when you look at the price, 7-8 times the income and a company that has created a lot of profits and cash in this way, I think it makes sense.”
After discussing the deal with Activision Blizzard, we discussed other aspects of Cochran’s career, including her past role as CFO of clearwire, which led sprint to acquire the company for $15 billion; And her current role in madrona investment games and fintech companies.
We also discussed her leadership role in the female induction team created by madrona and several other companies in the Seattle area to increase the proportion of women on the boards of listed companies. Cochran himself is a member of the board of directors of Hasbro mongodb and newrelic listed companies.
Cochran majored in economics and music at Stanford University. When asked about the songs that best represent her as an investor, she gave an interesting answer.