Zynga headquarters in San Francisco.
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Zynga shares are rallying Tuesday, a day after videogame publisher Electronic Arts said it was buying Glu Mobile for $2.4 billion. Zynga stock advanced 3.1% to $11.36 in afternoon trading.
With Glu (ticker: GLUU) all but sold to EA (EA), it’s possible investors are contemplating the 36% premium EA agreed to pay for Glu and what that could mean if rival mobile publisher Zynga (ZNGA) became an acquisition target.
With EA likely out of the picture as a potential suitor—though the company has $6.7 billion in cash and equivalents, according to Bloomberg data, and not much debt—Zynga could be courted by companies such as Take-Two Interactive Software (TTWO), Activision Blizzard (ATVI), or Ubisoft Entertainment (UBI.France).
Yet, Zynga is a considerably larger company than Glu, carrying a market value of $12.29 billion, according to Bloomberg data. It’s projected to generate adjusted profit of $380.9 million on sales of $2.25 billion this year.
Here at Barron’s, we like Zynga stock and previously published a positive story about its potential upside, arguing the company is well positioned for growth amid the vast market for mobile games. Shares have advanced 26% since our Oct. 30 story, as the S&P 500 index gained 20%.
Here’s how several potential Zynga acquirers in the videogame sector stack up:
Take-Two Interactive
Take-Two has $2.42 billion in cash and equivalents, and only $187.4 million worth of debt. It’s relatively low leverage and free cash flow of $974.6 million suggest it could raise more 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 its fiscal third-quarter call, Take-Two President Karl Slatoff said the two acquisition have given Take-Two a “sizable platform” in mobile games.
Activision
Rival Activision has a more substantial war chest of $8.64 billion, but also carries a greater debt load of $3.61 billion, according to Bloomberg data. With free cash flow of $2.17 billion, Activision could probably afford to buy Zynga. But would it want to?
Activision already has a large mobile-videogame division in King, which it bought for $5.9 billion in 2016. King reported bookings of $2.16 billion for 2020, and Activision has seen some notable success with its Call of Duty mobile title, suggesting it might look to its own franchises and expertise to grow that side 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 fiscal third quarter, which it reported early Tuesday. Over the past nine months, mobile bookings were 8% of revenue.
Tuesday, Ubisoft executives didn’t sound too interested in making a mobile acquisition. The company said that it was partnering with Chinese internet giant Tencent Holdings on a mobile title, and plans to build high-end games based on existing franchises and brands—similar to Activision.
Asked by Barron’s whether it was for sale, Zynga responded: “We do not comment on speculation.”
Zynga is expected to report results Wednesday after the closing bell. The consensus fourth-quarter per-share adjusted earnings estimate is 8 cents, on sales of $679 million. The earnings call could provide insight on the possibility of a sale.
Write to Max A. Cherney at [email protected]
