Microsoft Corp. is in advanced talks to acquire messaging platform Discord Inc. for $10 billion or more, according to people familiar with the matter, as the software giant seeks to deepen its consumer offerings.
Microsoft and Discord are in exclusive talks and could complete a deal next month, assuming the negotiations don’t fall apart, the people said.
Originally favored by gamers, San Francisco-based Discord offers voice, text and video chatting. The platform’s popularity has surged since the pandemic took hold as people stay home and connect online—as has that of other chat services, like Facebook Inc.’s WhatsApp and Signal Messenger LLC. Discord has been considering an IPO.
Microsoft, which has a market value of more than $1.7 trillion, has been on the hunt for an acquisition that would help it reach more consumers. Last summer, it held talks to buy the popular video-sharing app TikTok amid a high-profile geopolitical standoff prompted by the Trump administration, before abandoning the effort.
VentureBeat reported this week that Discord was exploring a sale and had entered exclusive discussions with an unnamed suitor.
GameStop shares were down 20.2%, at $145.05, in midday trading.
Michael M. Santiago/Getty Images
GameStop
stock was falling fast on Wednesday after the company’s fiscal fourth-quarter results disappointed analysts. There’s also another elephant in the room: The company is considering selling more stock, which could dilute its shares.
GameStop stock (ticker: GME) closed down 33.8%, at $120.34. The S&P 500 index fell 0.6%, while the
Dow Jones Industrial Average
ended flat.
In a filing with the Securities and Exchange Commission, GameStop said it has been evaluating whether or not to increase the size of its previously announced $100 million at-the-market stock-sale program. The company had announced the ATM program in December, with Jefferies acting as the sales agent. The company said it didn’t sell stock as its valuation surged.
GameStop stock received a mix of downgrades, price target cuts, and raises from analysts following the report. “Many on Wall Street have wondered why GameStop has not done an ATM transaction to take advantage of the elevated share price,” Telsey Advisory Group analyst Joseph Feldman wrote. “The answer may be that its balance sheet is in great shape, with cash and cash equivalents of $635MM (incl. restricted cash of $110MM) and debt of $363MM at the end of 2020. The new commentary seems to be a signal that an ATM transaction could be on the way.”
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Heading into Tuesday, Feldman had the highest price target listed by FactSet. He lowered his to $30 from $33, calling the event “anti-climactic.” On the flip side, Jefferies analyst Stephanie Wissink raised her target by 1,066% to $175. That’s the new Street-high, in case there was any doubt.
Wissink argued the moves by Chewy co-founder and GameStop board member Ryan Cohen to transform the company into more of a technology firm warrant a completely different valuation method. The company’s earnings release was paired with another trio of hires with e-commerce backgrounds, including
Amazon
alum Jenna Owens as its next chief operating officer.
Wissink wrote that she moved from basing her target on earnings before interest, taxes, depreciation, and amortization, or Ebitda, to a sales multiple that factors in a shift to e-commerce.
She also makes the point that GameStop has the potential to participate in the rise of non-fungible tokens, or NFTs, and the hosting of shoppable content streams.
“As a result, we expect store closures to persist & sales to transfer to dot com,” Wissink wrote. “Total revs may come down, but value per dollar of sales should increase if non-retail streams are realized.”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note on Wednesday that they believe the turnaround will involve sizable execution risks and possibly a material increase in its capital investment.”The recent increase and volatility in GameStop’s share price have not affected our fundamental view of its business or the risks the company faces,” they wrote. “However, we note the potential financial flexibility afforded by its improved equity market standing if it chose to raise additional capital to reposition its business or reduce its debt.”
BofA Global Research analyst Curtis Nagle maintained his $10 price objective and Underperform rating. He notes that while GameStop’s adjusted earnings per share of $1.34 beat his estimate for $1.22, he notes that the beat was driven by a large tax credit during the quarter. The company’s Ebitda came in short of his expectations by 66%.
“We continue to be very skeptical on GME’s efforts to address its long standing issue of digital disintermediation and the fact that its core market in new and pre-owned physical console gaming is shrinking at a rapid pace,” Nagle added. “GME also called out leveraging its existing digital assets like its PowerUp rewards program but this has seen declining engagement for years.”
Wedbush analyst Michael Pachter lowered his rating on GameStop to Underperform from Hold, but raised his price target to $29 from $16. While he still thinks GameStop is well-positioned to benefit from the new consoles from
Sony
and
Microsoft,
he says the short squeeze has spiked the stock to “levels that are completely disconnected from the fundamentals of the business.”
“Our downgrade isn’t a reflection of our opinion of company management, which remains very high; rather, it appears that the ‘real’ value of GameStop shares (the price willing buyers are prepared to pay in the open market) vastly exceeds the ‘fundamental’ value we believe investors expecting a financial return can reasonably expect,” he wrote.
China-based government hackers have exploited a bug in Microsoft’s email server software to target U.S. organizations, the company said Tuesday.
Microsoft
MSFT,
-1.30%
said that a “highly skilled and sophisticated” state-sponsored group operating from China has been trying to steal information from a number of American targets, including universities, defense contractors, law firms and infectious-disease researchers.
Microsoft said it has released security upgrades to fix the vulnerabilities to its Exchange Server software, which is used for work email and calendar services, mostly for larger organizations that have their own in-person email servers. It doesn’t affect personal email accounts or Microsoft’s cloud-based services.
The company said the hacking group it calls Hafnium was able to trick Exchange servers into allowing it to gain access. The hackers then masqueraded as someone who should have access and created a way to control the server remotely so that they could steal data from an organization’s network.
Microsoft said the group is based in China but operates from leased virtual private servers in the U.S., which helps it avoid detection.
The company declined to name any specific targets or say how many organizations were affected.
Reston, Virginia-based cybersecurity firm Volexity, which Microsoft credits for helping to detect the intrusions, said its network security monitoring service began picking up on a suspiciously large data transfer in late January.
“They’re just downloading email, literally going to town,” said Steven Adair, Volexity’s president, who said the targets have included “defense contractors, international aid and development organizations, the NGO think-tank community.”
Adair said he’s concerned that the hackers are going to accelerate their activity in the coming days before organizations are able to install Microsoft’s security upgrades.
“As bad as it is now, I think it’s about to get a lot worse,” he said. “This gives them a limited amount of opportunity to go and exploit something. The patch isn’t going to fix that if they left their backdoor behind.”
Here’s what we’re watching ahead of Wednesday’s opening bell.
—U.S. stock futures slipped, as investors awaited a bumper day of major earnings reports and a meeting of the Federal Reserve.
S&P 500 futures were down 1.1%, while futures tied to the technology-heavy Nasdaq-100 edged down 0.7%. Dow Jones Industrial Average futures fell 1.1%.
What’s Coming Up
—Earnings updates expected:
Tesla,
TSLA -0.71%
Apple
AAPL -0.22%
and
Facebook
FB -2.39%
are due after the close. The electric-car maker is expected to record its first full-year profit.
The Federal Reserve releases a policy statement at 2 p.m. and Chairman Jerome Powell holds a press conference at 2:30 p.m.
Market Movers to Watch
—And then there’s GameStop. Its stock popped again ahead of the bell, soaring 73% in wildly volatile trading. CNBC reported that Melvin Capital, a hedge fund that has posted big losses so far this year in part because of a wager against the videogame retailer’s stock, had closed out its short position on Tuesday afternoon. The report caused a stir on the online platform Reddit—popular among day traders waging a battle against hedge-fund short-sellers—where some members wrote that it was an attempt to pull
GameStop
GME 109.79%
‘s share price back down. And
Elon Musk
weighed in on the stock again last night with a tweet, “Gamestonk!!“
—The show must go on: Another heavily shorted stock, movie-theater operator
AMC Entertainment Holdings,
AMC 133.87%
saw its shares vault more than 350% higher premarket.
—Headphone maker
Koss
KOSS 72.20%
has also joined the party, and its shares jumped 109% premarket.
—
Bed Bath & Beyond
BBBY 28.21%
resumed its upward trajectory, up 20% ahead of the bell. Online traders point to an early 2020 change in management and the fact that the company is buying back shares as signs that the share price will continue to increase.
—
Microsoft
MSFT 1.44%
shares are up 2.1% premarket. The software giant’s profit and sales jumped, propelled by pandemic-fueled demand for videogaming and accelerated adoption of its cloud-computing services.
—
Boeing
BA -4.46%
shares fell 3.3% premarket after the plane maker reported its biggest-ever annual loss and took a huge financial hit on its new 777X jetliner, reflecting the pandemic’s worsening toll.
—
Abbott Laboratories
ABT 1.12%
shares added 1.5% premarket after it logged hearty profit growth in the latest quarter as a surge in demand for its Covid-19 diagnostics services contributed to higher revenue.
—
Starbucks
SBUX -5.30%
slipped 3% premarket after the coffee chain reported that sales fell during the holiday quarter but showed signs of recovery, particularly in China. Its operating chief
Roz Brewer
is leaving to become CEO of
Walgreens
WBA 6.21%
Boots Alliance, where she’ll be the only Black woman leading a Fortune 500 company. Walgreens shares climbed 5%.
A Walgreens store in Tomball, Texas, Jan. 16, 2021.
Photo:
Jeff Lautenberger for The Wall Street Journal
—
AT&T
T -1.11%
shares slipped 1.3% premarket after it reported a fourth-quarter loss as it booked a $15.5 billion charge on its pay-TV business.
—Chip maker
Texas Instruments
TXN -2.81%
‘s shares slipped 1.7% premarket even though quarterly results and outlook both topped Wall Street estimates after Tuesday’s close.
Market Fact
Retail order flows have reached 20% of the U.S. stock market’s total, according to
UBS
research, twice what they were in 2010.
Chart of the Day
GameStop shares have become a favorite of online traders who are seeking to make money from buying options.
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