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Microsoft Corporation (MSFT) in Rumored Gamestop (GME) Bid

Microsoft stock

Microsoft Corporation has put a lot of emphasis on physical products in recent years, and market rumors suggest that the firm is going to dive head first in the corporeal world. The firm, which made, and still makes, its money on software, is rumored to be thinking about buying out GameStop Corp. .

Microsoft Corporation (MSFT) Surface Book

Benzinga was the first to report market chatter about a possible Microsoft bid for GameStop. The story appears to have been driven by early market moves rather than anything close to proof. GameStop shares saw their volume spike in trading earlier on today. Volume spikes tend to make fertile ground for such rumors, though they rarely pan out.

Microsoft is building physical stores

Microsoft  is putting some kind of focus on hardware right now despite Satya Nadella’s asserted belief that the softer side of the business is worth more focus on. A bid for GameStop, which has a market cap of close to $5B, would be the fourth largest acquisition that Microsoft has ever made, and it would be a big change in the way the firm does business.

Microsoft has been working on a network of physical stores across the globe in order to showcase some of its hardware, but it doesn’t seem likely that a buyout of GameStop would help it build that network in an effective manner.

In the first place, Microsoft would have to decide what to do with the firm’s existing business. GameStop sells a whole lot of PS4 games, and ditching that part of the line up could create a brand disaster that Microsoft’s Xbox One business would find it hard to recover from.

Microsoft is a low volume hardware maker right now, and buying a 6000 store network to sell that hardware doesn’t make sense. The firm could use it to push Windows 10 devices made by third parties, but no matter what way the deal is framed it just doesn’t seem worth it to Microsoft.

Satya Nadella, who had to deal with the fallout from some of Steve Ballmer’s bad acquisitions, might be a little careful about buyouts that could offend shareholders. GameStop, without a good rationale, would be exactly that.

Gamestop stays strong

GameStop has had its up and downs this year, but heading into a holiday quarter that should be strong for gaming, Wall Street has been betting on the firm through October. Stifel analysts David Schick, Raymond Stochel and David Novak, in a report published on October 20, forecast strength at the firm though the end of the year.

In the view of the Stifel team GameStop still relies on major console releases to deliver earnings. For the fourth quarter titles like Fallout 4, Halo 5, and Star Wars Battlefront are expected to drive sales.

There’s no concrete info either way on whether Microsoft is thinking about buying the firm, but it doesn’t make much sense given the console market, and Microsoft’s own goals going forward. With so little backing, this rumor is likely the result of Friday restlessness.

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