Morgan Stanley Analysts Reiterate $245 Price Target, See Promising Future in Microsoft’s Gaming Business

On Thursday, Morgan Stanley analysts reiterated their Overweight rating on Microsoft (MSFT) with a $245 price target. The analysts see great upside for Microsoft ahead of new Xbox console launches and following the $7.5B acquisition of game developer and publisher Bethesda Softworks.

The long-awaited release of the Xbox Series X/S console is approaching quickly. As expected, Microsoft should experience an uptick in hardware sales driven by the increase of “work/stay/play at home” activities from consumers. “The increase in gaming hardware revenue in FY21 vs.FY20 of $779 million in our model is already pressuring our existing FY21 gross margin estimates by ~35bps”, stated by Morgan Stanley analysts.

The analysts further noted: “Microsoft’s revenue base has grown meaningfully since (MSe $156 billion revenue in FY21 vs $110 billion in FY18), thus making the margin dilutive effect less meaningful now, in our view. Despite this modest gross margin headwind, we look for FY21 gross margins to expand YoY to 69%, ahead of consensus at 68.3%.”

Gross margin fears shouldn’t be as bad as feared with the analysts commenting that “broader gross margin expansion in FY21 remains underappreciated”. FY21 Gross Margins will benefit from accounting changes and continued Azure improvements.

The accounting changes include a ~$2.7 billion benefit to COGS from lower depreciation expenses in FY21. This will tackle Commercial Cloud gross margin, a big concern that investors had come into the fiscal year. This will benefit Azure margins in the coming years, estimated to go from 56.2% in 2020 to 65.0% in 2021. Beyond FY21, analysts expect to see a more measurable pace of expansion supported by growth in Dynamics and Gaming Softwares/Services.

In addition, the argument can be made that the $7.5B Bethesda Softworks acquisition is a justifiable price tag. With the growing Xbox Live community and Game Pass ecosystem, Microsoft’s strategy

Morgan Stanley buying Boston-based Eaton Vance in deal valued at $7B

NEW YORK (AP) — Morgan Stanley is buying the investment management firm Eaton Vance in a deal valued at about $7 billion.

Eaton Vance, based in Boston, has over $500 billion in assets under management.

Morgan Stanley Chairman and CEO James P. Gorman said in a prepared statement Thursday that Eaton Vance will add more fee-based revenues to its investment banking and institutional securities franchise. The deal will give Morgan Stanley’s investment management arm approximately $1.2 trillion of assets under management and more than $5 billion of combined revenues.

Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833 of Morgan Stanley common stock, or approximately $56.50 per share. Based on the $56.50 per share, the amount paid to Eaton Vance shareholders will consist of about 50 percent cash and 50 percent Morgan Stanley common stock.

Each Eaton Vance shareholder will have the option to choose all cash or all stock, subject to a proration and adjustment mechanism. Eaton Vance shareholders will also receive a one-time special cash dividend of $4.25 per share to be paid before the transaction’s closing by Eaton Vance to its shareholders from existing balance sheet resources.

The deal is expected to close in the second quarter of next year.

Shares of Eaton Vance spiked 43 percent before the opening bell.

Source Article

AppLovin hires Morgan Stanley to lead IPO

A man plays a game on a smartphone.

Brent Levin | Bloomberg | Getty Images

AppLovin, the U.S. mobile app and gaming company backed by private equity firm KKR, has hired Morgan Stanley to lead preparations for an initial public offering (IPO) which could come early in 2021, according to people familiar with the matter.

The company has flirted with the idea of an IPO for years, but had never taken a concrete preparatory step. It is the latest mobile gaming startup to eye a stock market listing, as demand for video games surges among consumers staying at home during the COVID-19 pandemic.

The sources requested anonymity because the IPO preparations are confidential and cautioned that the plans are subject to market conditions.

“Today gaming is a fractured, fragmented market. I think the market will consolidate, and I think AppLovin will be one of those consolidators,” Ted Oberwager, a managing director in KKR’s technology, media and telecommunications team and an AppLovin board member, said in an interview. He declined to comment on the IPO plans.

AppLovin and Morgan Stanley declined to comment.

AppLovin has been profitable since it was founded in 2012 as a mobile games advertising platform. It expects to generate roughly $1.5 billion in revenue for 2020, according to one of the sources, who is familiar with the company’s finances.

By comparison, gaming platform Unity Software went public last month at a valuation of $13.7 billion after reporting revenue for the first six months of 2020 of $351 million. Its shares have risen more than 60% since the IPO.

In 2018, KKR acquired a minority stake in AppLovin for $400 million, valuing the company at $2 billion. AppLovin now expects to command a substantially higher valuation, the sources said.

In 2018, AppLovin also began a media division, Lion

Emails: Palantir blames Morgan Stanley for ‘blemished’ direct listing

  • In two emails sent internally this weekend, Palantir Technologies blamed Morgan Stanley for a “failure” that left some employee and alumni shareholders unable to sell their shares when the company made its public debut last Wednesday.
  • The problem stemmed from a glitch with Morgan Stanley’s trading platform Shareworks.
  • In an unsigned email sent late in the evening Sunday, Palantir said it had heard from Morgan Stanley that the bank was in a “war room” all weekend working to determine which shareholders were owed compensation. 
  • A spokesperson for Shareworks at Morgan Stanley said the issue was a “slowness” that “may have resulted in delayed logins into our system.”
  • Visit Business Insider’s homepage for more stories.

Palantir placed blame squarely on Morgan Stanley following a glitch in the bank’s trading software Shareworks on Wednesday, according two unsigned emails sent to “Palantirians” on Saturday and Sunday, which were obtained by Business Insider.

That glitch temporarily prevented some employee and alumni shareholders from selling shares during the tech company’s direct listing.

Morgan Stanley “intends to ‘make people whole’ who were affected by the Shareworks failure,” Palantir wrote in the email from Saturday.

“We have and will continue to put the weight of the company behind protecting our hobbits and helping make sure Morgan Stanley is good to its word,” that email said, referring to employees with a reference to “Lord of the Rings.”

“The issues that we encountered with Shareworks are very frustrating. And while it was a successful listing (we pulled off the near impossible in getting the company listed and out in less than 6 months) it was blemished by Shareworks’ failure,” that email added.

A spokesperson for Palantir declined to comment on the emails. 

A spokesperson for Shareworks by Morgan Stanley told Business Insider that it had “experienced slowness that may

Stock picks to buy, cheap alternatives to big tech: Morgan Stanley

  • Morgan Stanley says new technologies are feeding into a surge in productivity that will help the economy for years.
  • Strategist Adam Virgadamo says the pandemic will speed up that change, and investors don’t have to buy tech stocks to reap the rewards. 
  • He’s compiled a list of innovators that have been outperforming and look like they will continue to do based on their strategies and investments in their businesses.
  • Visit Business Insider’s homepage for more stories.

New technology has permeated so many industries and transformed business. But when investors want long-term growth, they’re mostly buying the same mega-cap tech stocks.

That’s stayed true even as some experts have warned about the sky-high prices of those same stocks, raising the spectre of the dot-com bubble 20 years ago and the dominance of a handful of giant stocks that hit record levels.

Whether there’s a bubble or not, Adam Virgadamo, a US equity strategist at Morgan Stanley, says investors need to be aware of the alternatives. He writes that technology is contributing to growth and bolstering economic productivity, feeding a secular bull market that dates to 2011 and didn’t end with the coronavirus crash.

“We are in the early innings of a technology-driven, decade-long investment cycle centered on data and digitalization that allows businesses to gain insights and improve productivity,” Virgadamo wrote in a note to clients.

He adds that the pandemic and its after-effects are only going to speed up that shift as companies look for ways to save money.

“[The recession] is a wakeup call to accelerate this digital transformation as companies with a greater digital presence are showing more resiliency in the wake of the pandemic,” he wrote. “We see a clear mindset shift at the executive level from viewing technology as supporting the business to technology becoming the