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San Francisco’s Zynga headquarters.
Justin Sullivan / Getty Images
Zynga
The shares rise on Tuesday, a day after video game publisher Electronic Arts said it was buying
Glu Mobile
for $ 2.4 billion.
Zynga
the stock advanced 3.1% to $ 11.36 in the afternoon trading.
With Glu (ticker: GLUU), although sold to EA (EA), it is possible that investors will consider the 36% premiums that EA has agreed to pay for Glu and what it might mean if rival mobile publisher Zynga (ZNGA) would become a target of acquisition.
Given that EA is out of the picture as a potential contender – although the company has $ 6.7 billion in cash and cash equivalents, according to Bloomberg data, and does not have too much debt – Zynga could be sued by companies such as
Take-Two interactive software
(TTWO),
Activision Blizzard
(ATVI) or
Ubisoft Entertainment
(UBI.France).
However, Zynga is a considerably larger company than Glu, with a market value of $ 12.29 billion, according to Bloomberg data. It is expected to generate an adjusted profit of $ 380.9 million on sales of $ 2.25 billion this year.
Here, at Barron’s, we like Zynga shares and have previously published a positive story about its top potential, claiming that the company is well positioned to grow in the vast mobile gaming market. Shares are up 26% from our October 30 story, as the S&P 500 gained 20%.
Here’s how some potential Zynga video game buyers are accumulating:
Take-Two Interactive
Take-Two has $ 2.42 billion in cash and cash equivalents and a value of only $ 187.4 million. The relatively low leverage and free cash flow of $ 974.6 million suggest that it could increase more debt to pay for a purchase – especially with historically low interest rates. But Take-Two acquired mobile developer Playdots for $ 192 million in cash last year and Social Point for $ 250 million in 2017. In his third-quarter tax appeal, Take-Two President Karl Slatoff said the two acquisitions gave Take-Two a “considerable platform” in mobile gaming.
Activision
Rival Activision has a more substantial war compartment of $ 8.64 billion, but also has a debt of more than $ 3.61 billion, according to Bloomberg data. With a free cash flow of $ 2.17 billion, Activision could probably afford to buy Zynga. But would he like to?
Activision already has a large mobile gaming division in King, which it bought for $ 5.9 billion in 2016. King reported $ 2.16 billion in reservations for 2020, and Activision has been remarkably successful with Call of Duty mobile title, suggesting that they could look at their own franchises and expertise to grow that part of the business.
Ubisoft
Ubisoft is in the weakest financial position to buy Zynga, with $ 1.28 billion in cash and total debt of $ 1.72 billion, according to Bloomberg data. Its free cash flow amounted to $ 513.3 million, and mobile bookings accounted for 5% of the company’s third fiscal quarter, which it reported early Tuesday. In the last nine months, mobile bookings accounted for 8% of revenue.
On Tuesday, Ubisoft executives did not seem too interested in making a mobile purchase. The company said it is partnering with Chinese internet giant
Tencent Holdings
on a mobile title and intends to build high-end games based on existing franchises and brands – similar to Activision.
Asked by Barron’s regardless of whether it was for sale, Zynga replied: “We do not comment on speculation.”
Zynga is expected to report results Wednesday after the closing bell. The consensus estimate of earnings adjusted per share for the fourth quarter is 8 cents, for sales of $ 679 million. The call for earnings could provide information about the possibility of a sale.
Write to Max A. Cherney at [email protected]