Microsoft shares up 2.9% on Monday despite FTC lawsuit

Microsoft has had an eventful week. From acquiring a 4% stake in the London Stock Exchange Group to being sued by the FTC over a $68.7bn gaming deal and considering developing a WeChat-inspired "super app”, what does the tech giant have in store next?

- Microsoft shares were up 2.9% on Monday following its acquisition of a stake in the London Stock Exchange

- Microsoft amends its Activision deal after FTC lawsuit which could overturn the ruling

- The Vanguard Information Technology ETF, which holds Microsoft, is down 25.81% year-to-date

On Monday, Microsoft [MSFT] announced that it has acquired a 4% stake in the London Stock Exchange [LSEG.L] worth £1.5bn as part of a 10-year data infrastructure deal.

The stake was acquired from a Blackstone [BX] and Thomson Reuters [TRI] consortium, according to a news release announcing the deal. The deal, which has a budget upward of $2.8bn, will focus on LSEG’s digital transformation using Microsoft’s cloud-based data platform.

London Stock Exchange shares were up 4% ahead of market open in Europe on Monday, and closed the day up 3%. Microsoft shares rose 2.9% on Monday, closing at $252.51 after ending the previous week at $245.42.

It hasn't all been good news for Microsoft this week, though. Its $68.7bn deal to acquire videogame software company Activision Blizzard [ATVI] is being investigated over competition concerns.

FTC sues over Microsoft/Activision tie-up

The US Federal Trade Commission has voiced concerns that the tech giant could create a monopoly by bringing blockbuster games such as ‘Call of Duty' into its portfolio, by giving the Xbox console exclusive access to these games. This would, naturally, leave competitors in the $200bn gaming industry including Sony [6758.T] and Nintendo [7974.T], at a major disadvantage.

The FTC has sued to block the acquisition and has scheduled an in-house trial for August 2023. Meanwhile, the EU is also conducting a thorough investigation. If the deal goes through, it could make Microsoft the third-largest gaming company, preceded by Tencent [TCEHY], a Bloomberg report noted.   

In response to the antitrust regulator’s lawsuit, Microsoft has volunteered to amend the deal, proposing a 10-year arrangement to allow Nintendo’s and Sony’s games consoles access to 'Call of Duty’. This should throw the deal a lifeline and give it a solid chance at moving the decision in its favour, Bloomberg reported, citing lawyers with knowledge of the case.

Microsoft is also finding itself in increased competition with social media firms, having recently considered creating a WeChat-like “super app”. The mooted app could integrate messaging, shopping, news feeds, online search and other features in a single platform, The Information reported on Tuesday, citing people familiar with the matter. The report adds that Microsoft’s motivation for developing the app is to loosen the grip of Google and Apple on the mobile ecosystem and re-enter the mobile app scene, which it abruptly dropped out of in late 2019 when it discontinued Windows Mobile.

Funds in Focus: VanEck Vectors Video Gaming and eSports ETF, Vanguard Information Technology ETF

Gaming-themed ETFs picked up earlier in the year when the Activision acquisition was first announced. The VanEck Vectors Video Gaming and eSports ETF [ESPO], which offers exposure to gaming companies, includes Activision among its top four holdings and has gained 3.5% in the past month.

Microsoft is the second-largest holding in The Vanguard Information Technology ETF [VGT], an information technology-focused fund, and comprises 16.94% of the total assets. The ETF is down 24.7% year-to-date and flat over the past month.

According to the Financial Times, among the 50 analysts that provided ratings for Microsoft stock, the consensus recommendation is ‘outperform’, with 29 analysts recommending it as such. Eighteen recommend the stock as a ‘buy’ and two a ‘hold’. The median price target among analysts is $290, which would represent a 12.9%  increase on Tuesday’s closing price.