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Take-Two: Acquiring Zynga an Opportunistic Move, Says Top Analyst

In what amounts to the biggest deal in the history of the video gaming industry, on Monday, Take-Two (TTWO) announced it plans on acquiring Zynga (ZNGA) in a cash-and-stock deal which values the mobile gaming specialist at around $12.7 billion.

As mobile gaming currently makes up just 10% of TTWO’s total bookings, the addition would significantly boost its mobile business; mobile is the interactive entertainment industry’s fastest-growing section.

“We are not surprised by this proposed deal (maybe a little surprised it took this long),” said Baird analyst Colin Sebastian. “Zynga will bring to Take-Two a large portfolio of top mobile games, vast expertise in free-to-play monetization and ‘live events,’ and strong mobile gaming leadership team.”

Zynga’s mobile games portfolio includes “Farmville,” “Words With Friends,” “Empires & Puzzles,” and “Zynga Poker.”

Its intention to aqcuire Zynga for what amounted to $9.86 per share, placed a 64% purchase premium on Zynga’s share price at the time of the announcement. As such, Zynga stock surged on the news, while TTWO shares tanked by 13%. While the overall size of the deal and “concerns” over Take-Two’s own pipeline attributed to the negative market reaction, Sebastian thinks this “opportunistic deal” – Zynga shares had been on the backfoot for the past year – “makes sense given the benefits of scale and data in managing a portfolio of mobile games.”

Valuation aside, as a combined entity, the two have “identified numerous strategic initiatives.” These include a net bookings CAGR of 14% through F2024, $500 million in yearly net bookings opportunities, and annual cost synergies of $100 million within the first two years following the deal’s consummation. “Importantly,” says the 5-star analyst, “The 14% CAGR excludes the $500M potential annual bookings opportunity and any additional acquisitions.”

The deal is anticipated to close during first-quarter fiscal 2023 (ending on June 30, 2022) following which Zynga CEO Frank Gibeau and Zynga President Bernard Kim will jointly take charge of Take-Two’s mobile game initiatives.

So, great for the video game publishers, but what does it all mean for investors? Sebastian reiterated an Outperform (i.e., Buy) rating on TTWO, along with a $215 price target. This target puts the upside potential at a ~39%. (To watch Sebastian’s track record, click here)

The Street concurs. TTWO’s Strong Buy consensus rating breaks down into 13 Buys, and 4 Holds. The upside potential comes in at 34%, should the average price target of $207.56 be met over the next 12 months. (See TTWO stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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