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The Ratings Game: GameStop stock sinks toward 11-month low...

The Ratings Game: GameStop stock sinks toward 11-month low as Microsoft-Activision merger poses ‘walled garden’ risk


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Shares of GameStop Corp. dropped toward their seventh-straight loss Wednesday, after Jefferies analyst Stephanie Wissink said the Microsoft-Activision merger could pose a “walled garden risk” for the videogame retailer.

The “meme” stock GME, -1.03% slumped 3.1% in midday trading, putting it on track for the lowest close since Feb. 26, 2021. It has now tumbled 25.0% amid a seven-day losing streak, which would match the longest stretch of losses the stock has suffered since the 11-day streak that ended Nov. 7, 2017. There have been two other 7-day losing streaks since then, ending on Aug. 4, 2021 and April 13, 2021.

Read more in MarketWatch’s “MemeMoney” column.

Wissink said the $68.7 billion deal for Microsoft Corp. MSFT, +2.01% to buy Activision Blizzard Inc. ATVI, -0.07% announced Tuesday is a “game changer,” as it speeds up the digitization of gaming.

She reiterated the hold rating she’s had on GameStop since October 2020, but lowered her stock price target to $100 from $145. The new target implies 5.2% downside from current levels.

“Both MSFT [Microsoft] and ATVI [Activision] are key vendors to GME [GameStop] and a merger would strengthen their combined power to alter economics, merge data and leverage verticalization across hardware and software,” Wissink wrote in a note to clients. “Should Microsoft elect to make Activision’s ‘triple-A’ titles exclusive to Xbox, it would impact a key source of new software sales volume for GME.”

Don’t miss: Opinion: Microsoft faces battle for Activision deal, especially if ‘Call of Duty’ is destined for Xbox exclusivity.

She said that while Microsoft indicated it wasn’t planning a single-centralized gaming metaverse, “the combo of MSFT + ATVI aggregating content and properties within their specific ecosystem could pose a potential walled garden risk to GME.”

Basically, Wissink said GameStop management had already realized that the digitization of gaming was a growing risk, as the “unique downstream deal” with Microsoft announced in the fall of 2020 indicated, but the merger speeds things up.

“Microsoft’s agenda to win this cycle was being seeded; [Tuesday’s] announcement takes it to a whole new level,” Wissink wrote. “Unfortunately, we don’t see GME’s role as enhanced, at least not initially.”

GameStop’s stock has plunged 43.5% over the past three months but has still soared 168.0% over the past 12 months, while the S&P 500 index SPX, -0.11% has gained 20.2% over the past year.

Source: MarketWatch.com

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