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Zynga headquarters in San Francisco.
Justin Sullivan / Getty Images
Zynga
shares are piling up on Tuesday, a day after video game publisher Electronic Arts said it was buying
Glu Mobile
for $ 2.4 billion.
Zynga
shares advanced 3.1% to $ 11.36 in the afternoon trading.
With Glu (ticker: GLUU) almost sold to EA (EA), investors may be contemplating the 36% premium that EA agreed to pay for Glu and what it would mean if rival mobile publisher Zynga (ZNGA) became in an acquisition goal.
With EA probably out of the picture as a possible suitor – although the company has $ 6.7 billion in cash and cash equivalents, according to Bloomberg data, and there isn’t much debt – Zynga could be courted by companies like
Take-Two interactive software
(TTWO),
Activision Blizzard
(ATVI), or
Ubisoft Entertainment
(UBI. France).
Still, Zynga is a considerably larger company than Glu, with a market value of $ 12.29 million, according to Bloomberg data. It is expected to generate an adjusted profit of $ 380.9 million in sales of $ 2.252 billion this year.
Here a De Barron, we like Zynga’s shares and have previously posted a positive story about its positive potential, arguing that the company is well positioned for growth amid the vast market for mobile games. Shares have advanced 26% since our October 30 story, as the S&P 500 index gained 20%.
Here’s how several potential Zynga buyers fit into the video game industry:
Take-Two Interactive
Take-Two has $ 2,422 million in cash and cash equivalents, and only has a debt of $ 187.4 million. Its leverage is relatively low and the $ 974.6 million free cash flow suggests it could increase debt to pay for an acquisition, 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 call, Take-Two president Karl Slatoff , said the two acquisitions have given Take-Two a “considerable platform” in mobile gaming.
Activision
Rival Activision has a more substantial $ 8.664 billion cash box, but it also carries a higher debt load of $ 3.66 billion, according to Bloomberg data. With a free cash flow of $ 2.17 billion, Activision could probably afford to buy Zynga. But would you like it?
Activision already has a large mobile video game division in King, which it bought for $ 5.9 billion in 2016. King reported $ 2.166 billion in reserves for 2020 and Activision has had remarkable success with its Call of Duty mobile title, which suggests you could consider your own franchises and experience to grow this side of the business.
Ubisoft
Ubisoft is in the weakest financial position to buy Zynga, with $ 1.28 billion in cash and a total debt of $ 1.72 billion, according to Bloomberg data. Its free cash flow amounted to $ 513.3 million and mobile reserves accounted for 5% of the company’s third fiscal quarter, it reported early Tuesday. Over the past nine months, mobile bookings accounted for 8% of revenue.
On Tuesday, Ubisoft executives didn’t seem too interested in making a cell phone acquisition. The company said it was partnering with Chinese internet giant
Tencent Holdings
in a mobile title and plans to build high-end games based on existing brands and franchises, similar to Activision.
Asked by De Barron if sold, Zynga replied, “Don’t comment on speculation.”
Zynga is expected to report results Wednesday after the closing bell. The fourth-quarter adjusted earnings per share estimate is 8 cents, with sales of $ 679 million. The earnings call could provide information about the possibility of a sale.
Write to Max A. Cherney at [email protected]