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Is Microsoft (MSFT) Eyeing Fallout Developer Obsidian?


Speculation is rife that Microsoft MSFT is likely to acquire Obsidian Entertainment studio, according to a Kotaku report citing three people familiar with the matter.

Obsidian is popular for developing role-playing games (“RPG”), including the likes of Fallout: New Vegas, Star Wars: Knights of the Old Republic II, South Park: The Stick of Truth, to mention a few.

In case the acquisition leads to fruition, it will be a win-win deal for both the parties. We believe the buyout will significantly expand Microsoft’s gamer base. Further, the company is well poised to benefit from the operational efficiencies and the combined innovative skills. These factors are likely to bolster originality in its gaming content.

Meanwhile, Obsidian is expected to gain from Microsoft’s robust artificial intelligence (“AI”) capabilities and upscale its operations.

However, we may note that things have gone south between Obsidian and Microsoft in the past. Reportedly, Microsoft had abruptly called off Xbox One exclusive RPG, Stormlands in 2012. Nevertheless, both the entities have come a long way since then.

Microsoft is leaving no stone unturned to enhance its gaming portfolio with Xbox exclusives, original content, unveiling new studios, among other initiatives.

Microsoft Enhancing Gaming Features

In a bid to boost exclusive gaming content, Microsoft announced its newly developed gaming studio, The Initiative at E3 in June. The company has acquired Playground Games, Compulsion Games, Ninja Theory and Undead Labs, in this regard.

Moreover, Microsoft recently enabled Xbox One users to experience Dolby Vision display via a simple system update.

The company has also launched a subscription service called Xbox All-Access that includes the company’s Xbox Live Gold subscription (offering exclusive content, including two free downloadable games every month) and Game Pass (offering access to 100+ games) along with the cost of an Xbox One S (starting at $22 a month) or Xbox One X (starting at $35 a month).

Microsoft is trying to catch up with Sony SNE, which has taken a huge lead in this product cycle.

Per Statista, PlayStation 4 dominated the console market by generating 19.64 million unit sales in 2017, Nintendo’s NTDOY Nintendo Switch reported 11.85 million units coming second, while Microsoft’s XBox One sales came in at 8.21 million units.

Reportedly, the company's hardware team is working on the development of the next Xbox console, which is expected to set the standard for console gaming. However, the details pertaining to the new console have been kept under wraps.

The company’s announcement of upcoming new Xbox console keeps us interested about whether it can edge out the forthcoming Sony PlayStation 5.

In the fourth quarter, Microsoft’s gaming revenues jumped 39% (38% at cc), driven by robust performance from Xbox software and services (up 35% at cc), primarily due to third-party title strength. Xbox Live monthly active users were up 8% to 57 million active users.

For the first quarter of fiscal 2019, Microsoft anticipates Gaming revenues to grow in mid teens.

Microsoft Corporation Price and Consensus

Microsoft Corporation Price and Consensus | Microsoft Corporation Quote

Zacks Rank & Key Pick

Microsoft carries a Zacks Rank #2 (Buy).

Salesforce.com Inc CRM sporting a Zacks Rank #1 (Strong Buy) is a stock worth considering in the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Salesforce has a long-term earnings growth rate of 25%.

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