Sony has "vastly overpaid" with its $3 billion buyout of Bungie, analyst Michael Pachter says.
Sony's decision to buy Bungie was a knee-jerk reaction to its competitors making power plays. According to Wedbush Securities analyst Michael Pachter, Microsoft's $68.7 billion acquisition of Activision-Blizzard and Take-Two's $12.7 billion merger with Zynga prompted Sony to make a "me too" purchase of Bungie--and that the buyout was significantly overpriced.
In a recent interview with Yahoo Finance, Pachter outlines his value-oriented rationale. It all comes down to share price and revenues generated by each company. Pachter estimates that Bungie makes $200 million in revenue a year, and Sony essentially paid $4 million per developer (Bungie has over 900 developers).
Contrast that with EA's purchase of Respawn Entertainment for $455 million, a company who makes, according to Pachter, about $700 million a year with 400 developers. Respawn's Apex Legends has generated $2 billion since its release in February 2019, and Respawn also made the best-selling Jedi Fallen Order game.
So $455 million for a developer that's made $2 billion in revenues. Not a bad deal.
Of course we don't know how much Bungie makes. That information is kept safely guarded, but it may get announced in Sony's financials in some form. Bungie's revenues should be included in quarterly PlayStation earnings but exact metrics will probably still be unknown.
Let's not forget that Sony's buyout isn't just limited to games. Sony is always interested in transmedia and is currently bringing many of its games to the silver and small screens with film and TV show adaptations. This will happen with the Destiny franchise, too.
Sony and Bungie want to make an interconnected ecosystem of live services, monetization, and subscription-based revenues that tie directly into transmedia content. Sony doesn't have a lot of live service games under its belt, either, whereas Microsoft's empire is built on live services. Take-Two Interactive also has a live game empire thanks to its lucrative NBA 2K series and billions generated from GTA Online revenues.
Here's what Pachter said in the interview:
Sony I think just did a me too statement and said, 'we're not going to be left behind so we'll buy Bungie'."
The Activision deal and the Zynga deal were both done below those stock's recent highs. So Activision had traded over $100 back in October, and the deal was at $95. Zynga had traded over $11, I believe, and the deal was done at $9.86. So they didn't really overpay, either of the acquirers.
Bungie went for $4 million per developer, and most deals are between $250,000 and a million. I've seen deals as high as $2 million per developer. This is crazy talk.
And just to compare and contrast, EA bought Respawn about three or four years ago for $700 million with 400 developers, and those guys generate $700 million a year in revenue. Bungie does about $200 million in revenue.
So I think Sony vastly overpaid, I think this was a statement that 'we're not going to let Microsoft get ahead of us, so we'll just buy something out of desperation.' It's not really a deal that makes a whole lot of sense to me. The others do.
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