amazon gaming

Amazon (NYSE: AMZN) is rumored to bid for Electronic Arts. If the reports turn out to be true, it would be the biggest deal for the company ahead of its 2017 acquisition of Whole Foods, and one of the biggest deals in the gaming industry.

Amazon has anyways been on an acquisition spree. Over the last month, it has announced the acquisition of One Medical for $3.9 billion and iRobot, which makes Roomba vacuum cleaners for $1.7 billion. Earlier this year only, it completed the acquisition of MGM Holdings, which was its second-biggest acquisition ever.

The acquisition of MGM Holdings has strengthened Amazon Prime’s library. The company has increased prices for Prime in many geographies including North America and Europe and needs to justify the price hikes amid the intensifying streaming war.

If Amazon indeed bids for Electronic Arts, it would be a sizeable deal. The gaming company has a market cap of $35 billion and Amazon would need to offer a premium over current prices to acquire it. Amazon offered a hefty premium for iRobot and One Medical also.

Meanwhile, amid rumors of Amazon’s bid, Electronic Arts stock is trading higher in US premarket price action today. Amazon stock is slightly lower today but that seems more because of the weakness in broader markets where futures point to a weak opening. It is nonetheless usual for companies getting acquired at a premium to surge on the acquisition news while the stock price of the acquirer falls.

Gaming Looks the New Frontier for Big Tech Companies

Big Tech companies have been diversifying their business. A lot of tech companies like Apple, Amazon, and Microsoft have made acquisitions in the healthcare space. In a surprise move, TikTok parent ByteDance announced the acquisition of a hospital chain in China.

Gaming looks like another sector that is drawing interest from tech companies. Earlier this year, Microsoft announced the acquisition of Activision Blizzard to complement its gaming business. The company already had a presence in gaming with its Xbox.

Commenting on the acquisition, Microsoft’s CEO Satya Nadella said “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms.” He added, “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive, and accessible to all.”

Microsoft is Acquiring Activision Blizzard

Once the deal closes, Microsoft would become the world’s third largest gaming company behind Tencent and Sony. Tencent’s fortunes have meanwhile sagged amid the slowdown in China and it reported the first ever sales decline in the most recent quarter.

Even Microsoft reported mixed earnings for the fiscal fourth quarter of 2022. However, analysts maintained their buy rating on Microsoft stock after the upbeat guidance. That said, global PC sales have weakened in 2022 and Dell warned of lower sales in the fiscal third quarter of 2023. Dell stock is trading lower today after tepid guidance and sales miss.

Even Nvidia is feeling the heat from falling demand for gaming hardware. Its gaming revenues plunged 33% YoY and reached $2.04 billion in the fiscal second quarter of 2023. The demand for gaming hardware has fallen sharply this year. The industry saw strong growth between 2020 and 2021 as gaming demand was strong due to the lockdowns.

Even Netflix is Adding Gaming to Its Streaming Platform

Last year, Netflix also announced that it would add gaming to its streaming platform. Its subscriber growth has stalled and the company lost 1.2 million subscribers in the first half of 2022. Netflix is also looking to launch an ad-supported tier which would be priced lower than the current ad-free tiers.

In Amazon also acquires Electronic Arts, it would be able to increase its target market. The company impressed markets with its Q2 2022 earnings and guidance. After the Q2 earnings beat several, Wall Street analysts issued bullish notes and advised buying Amazon stock. JPMorgan raised its target price from $175 to $185 while Deutsche Bank raised its from $155 to $175.

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