Inside Take-Two’s Risk Factors Amid Pending Zynga Deal

New York-based Take-Two Interactive (TTWO) develops videogames for consoles, smartphones, and other devices. 

For Fiscal Q3 2022 ended December 31, Take-Two reported a 5% year-over-year rise in revenue to $903.3 million. But EPS of $1.24 slipped from $1.57 in the same quarter the previous year.

For its upcoming Q4 earnings, Take-Two expects revenue in the band of $835 million to $885 million and EPS of between $0.46 and $0.56.

In January, Take-Two announced a deal to acquire fellow videogame developer Zynga (ZNGA). It plans to pay for the purchase with cash and stock valued at $12.7 billion.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Take-Two.

Risk Factors

According to the new TipRanks Risk Factors tool, Take-Two’s top risk category is Tech and Innovation, with 17 of the total 46 risks identified for the stock. Finance and Corporate and Ability to Sell are the next two major risk categories, each containing 8 risks. Take-Two has recently added two new risk factors under the Finance and Corporate category.

Take-Two is counting on the Zynga acquisition to unlock about $100 million in annual cost synergies in the first two years. It also expects the transaction to transform it into the world’s largest mobile games publisher, describing mobile games as the fastest-growing segment of its industry. As a result, it sees a more than $500 million boost to its annual bookings opportunities. However, Take-Two warns investors that those expectations may not be achieved.

Take-Two expects to complete the transaction by the end of June 2022. However, it explains that approval by the shareholders of both companies would be required to complete the deal. Additionally, the deal requires regulatory approvals. Take-Two warns that some of the conditions that must be met for the transaction to be completed are outside of the control of the parties involved.

Further, Take-Two cautions that Zynga could change its mind and abandon the merger agreement. Zynga has been allowed until February 24 to shop for an alternative deal, and it could terminate its deal with Take-Two if it finds a better option. However, Zynga would need to pay a $400 million termination fee to Take-Two. Take-Two Interactive could also be liable to pay a $500 million termination fee to Zynga if the deal collapses under certain circumstances.

Take-Two Interactive stock has declined about 3.5% year-to-date.

Analysts’ Take

Benchmark analyst Mike Hickey recently reiterated a Buy rating on Take-Two Interactive stock with a price target of $200, which suggests 16.05% upside potential. The analyst noted that Take-Two Interactive reported solid Q3 results and issued an upbeat Q4 outlook.

Consensus among analysts is a Strong Buy based on 11 Buys and 3 Holds. The average Take-Two price target of $204.07 implies 18.41% upside potential to current levels.

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