Microsoft to focus on '3 Cs' to compete in video game industry, Morgan Stanley says
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Microsoft (NASDAQ:MSFT) is "focusing and evolving" the "3 Cs" of gaming as part of its plan to compete in the video game industry, investment firm Morgan Stanley said.
After speaking with Xbox CFO Tim Stuart, analyst Keith Weiss, who has a $372 per-share price target on Microsoft (MSFT) and an overweight rating, noted that the company's focus on content, community and cloud in its games and platforms should allow it to grow its revenue opportunities in the long run. 
"Utilizing the companyâs breadth in content, expanding community and industry leading cloud offerings, Microsoft is further building out its holistic gaming platform that is expected to see robust growth over the next 12 months," Weiss wrote in a note to clients.
Microsoft (MSFT) shares gained slightly less than 1% to $247.21 in premarket trading on Friday.
Delving deeper, Weiss noted that a traditional single content release is no longer going to drive growth in the industry, and that it has evolved to be more holistic in nature. Content is still the "central driver," but it's more about how the content is accessed, such as âGame Pass, that could let Microsoft (MSFT) see a "smoother revenue growth" in the future.
In addition, Weiss pointed out that Microsoft's (MSFT) game development is improving and almost back to where it was prior to the pandemic, with such anticipated titles as Starfield, a new Forza Motorsport and maybe even Redfall coming sometime in the next 12 months.
As important as those console titles are, Microsoft's (MSFT) management also understands the importance of mobile gaming, which absent acquisitions, "will likely take time to build out," Weiss pointed out. 
Mobile gaming is an area where Microsoft competitor Apple (AAPL) has worked hard to gain a footprint, via its Apple Arcade service.
Other areas such as community and cloud are also important, with Game Pass "creating a fly wheel for revenue generation" via content purchases and micro-transactions. Game Pass, which has 25M subscribers currently, can help achieve the company's goal of building out a community on its way to 100M subscribers.
Weiss also noted this is where Microsoft's (MSFT) pending acquisition of Activision (ATVI) can help out, given its franchises such as World of Warcraft, Call of Duty and the mobile-centric Candy Crush. 
The cloud, where Microsoft (MSFT) generates a significant portion of its revenue via its Azure platform, is considered a "unique competitive advantage" for its gaming business, Weiss pointed out. 
"Leveraging the power of Azure provides the company a natural advantage against key content creating competitors who do not have cloud native capabilities that Microsoft has," Weiss explained, adding that the company has a plan to reach 3B gamers around the world via cloud gaming, notably its xCloud platform.
On Tuesday, Microsoft (MSFT) declared its quarterly dividend of $0.62, which is in-line with its previous payments.