Daily Brief - Take-Two adds some Zyng(a) (Jan 11, 2022)

Zynga shareholders loved it. Take-Two’s distinctly didn’t. Gaming giant Take-Two Interactive announced yesterday that it’s buying Farmville-creator Zynga: and markets immediately reacted.

Take-Two stock was down 15%, after the companies announced the cash-and-stock deal, which represents a 64% premium to Zynga stock’s closing price on Friday. Of course, that’s 20% below Zynga’s 52-week high.

Why now?

The pandemic has turned many of us into gamers. Most (so I hear) haven’t called it quits just because sitting on the couch at home is no longer hailed as the life-saving measure it used to be. For those “forced” to return to the office, mobile gaming is a way to mitigate the woes of a lengthy commute.

Take-Two wants in on the action: the maker of Grand Theft Auto is buying all of Zynga’s shares for $11 billion. The merger will turn Take-Two into one of the world’s most prominent mobile game publishers.

The numbers could work

Barron’s published a lengthy interview with the Take-Two CEO, Strauss Zelnick, where he makes a strong case for the deal. In particular, he’s very bullish on the revenue growth - a sizzling 14%/year - that the combined company could achieve.

In addition to scale, the CEO sees $100 million in cost synergies (CEO speak for saving money) in the near term, and the opportunity to create $500 million annually in new revenue without regard to new game development.

Not too shabby although, as mentioned earlier, Take-Two investors aren’t yet seeing it.

The reality is, the global gaming market is colossal. Total gaming revenues hit $180 billion last year, and more than half of that was mobile gaming.

Take-Two just became an even bigger fish in a big pond.