In an interview on The Closing Print show with Joel Elconin and Josh Walter, special guest Michael Pachter, a leading analyst from Wedbush Securities, shared his opinions about the Microsoft-Activision deal and the future of GameStop.
Microsoft-Activision Acquisition
Pachter began by addressing the Microsoft-Activision (NASDAQ: MSFT, NASDAQ: ATVI) deal, where Microsoft plans to acquire Activision for $95 per share. At the time of the deal’s announcement, Activision shares were trading at $62 and barely rose above $70 during most of the year following the announcement.
The acquisition received conditional approval from both the European Union and UK regulators, with the only issue being the streaming business in the UK. However, the US Federal Trade Commission (FTC) opposed the deal, arguing that it would cause irreparable harm and it was likely to win the case.
Predictions and Targets
According to Pachter, the FTC’s argument was unlikely to stand since EU and UK regulators had found no substantial harm. During an emergency injunction hearing, the presiding judge challenged the FTC’s claims. Given these developments, Pachter anticipates that the deal will proceed without an injunction, leading to an approximate $10 increase in Activision shares. In Michael’s view, ATVI could rise to $95 or above, even if the deal were to fall through, given the condition that MSFT would have to pay them $3 billion if they are unable to follow through with the deal.
GameStop’s Future
Regarding GameStop, both Elconin and Pachter mentioned that Ryan Cohn, the chairman of GameStop, had seemingly abandoned his strategy to make GameStop more like Amazon. The strategy aimed to replicate the success of Chewy, a pet food and products retailer co-founded by Cohn. However, Pachter questioned the viability of the strategy, pointing out that unlike pet food, video games can be downloaded, a trend that is growing each year.
Moreover, Cohn’s decision to hire three Amazon executives to lead GameStop proved unfruitful as all of them left within a year. The company’s “Amazon strategy” is effectively dead, according to Pachter, with GameStop’s current market standing and future potential not justifying its current market cap.
Pachter said that GameStop’s market will likely continue to decline and predicted that the company could start losing money, wiping out their cash reserves in about five to six years. He warned that GameStop may not find a new wave of investors following the past surge in interest from retail investors on Reddit. Pachter set a one year price target of $6.20 for GameStop shares, but predicts that the company would be near $0 in about three to four years.
Closing Thoughts
Pachter’s insights and predictions paint a clear picture of the landscape for both Microsoft and GameStop. As the Activision acquisition nears closure, it could potentially strengthen Microsoft’s position in the gaming market. However, the future for GameStop looks less promising, with the company facing significant challenges in a rapidly evolving gaming industry.
