On Monday, Take-Two Interactive Software (NASDAQ: TTWO) said it would buy Zynga (NASDAQ: ZNGA), maker of 'Farmville' and 'Words with Friends', among others, for a hefty $12.7 billion as the gaming giant takes a hard turn toward mobile games.
Take-Two CEO Strauss Zelnick called the deal "transformative," saying it would bring in $100 million in annual savings and an additional $500 million in net bookings for the company. Despite these assurances, shares of Take-Two fell hard in the wake of the news dropping 15% during intra-day trading Monday, their sharpest decline since 2009.
However, handheld games have grown in ubiquity during the pandemic, and the deal gives Take-Two a clear chance to capitalize. By 2023 the company expects mobile games to account for 50% of net bookings, up from 12% in 2022. Meanwhile, mobile gaming's share of the market is expanding according to data from Newzoo, showing the category accounted for 52% of industry revenues last year, while PC and console revenues dropped.
With 3,000 employees and years of releases behind it, acquiring Zynga gives Take-Two a firm footing in both halves of the gaming industry and reduce's Take's dependence on its multi-year release schedule, as investors patiently await signs of the sixth installment in the 'Grand Theft Auto' series.
Meanwhile, both company's bring their respective expertise in user engagement and data collection on their respective platforms. Zynga's Chartboost ad network also offers new opportunities for targeted advertisement, and thus revenue, the company's release points out
Meanwhile, Take-Two brings to the table a roster of multibillion intellectual properties, including 'Grand Theft Auto' and 'Red Dead Redemption', each of which are ripe for the chance for a mobile spin-off.
In light of the above-outlined synergies, Take-Two said it expects to pull in the promised $500 million in additional net bookings. Other analysts have since caught on to the strategies enumerated in the company's release, causing some to revise their views upward.
"We believe the deal is a strong strategic fit, significantly improving TTWO's position in mobile and likely accelerating the path for its high-quality IP to launch on mobile," wrote KeyBanc Capital Markets' Tyler Parker in a note to clients.
"Scale matters a great deal in the mobile market as it is a very data-centric business," wrote MKM Partners analyst Eric Handler, pointing to Apple's (NASDAQ: AAPL) privacy changes that allow users to opt-out of inter-app tracking. "Ad networks (like Zynga's Chartboost) are becoming more important along with machine learning algorithms" to deliver targeted ads in light of Apple's new policies, he added.
"More games that are contributing user traffic into the ad network allows Take-Two to better target ads and therefore charge more for advertising," Harvard University Business School assistant professor Henry Wu told Yahoo Finance. He added that the opportunity to skirt Apple's policies through in-game ad networks could result in publishers becoming "content fortresses," gobbling up smaller studios to expand their mobile offerings.
Meanwhile, other gaming consortiums have also secured their own multibillion buyouts of mobile gaming studios as consumer habits shifted and the strategic become clear. One of the world's largest gaming companies, Tencent Holdings (OTC: TCEHY), bought studio SuperCell Oy, maker 'Clash of Clans' for $8.6 billion in 2016, while EA (NASDAQ: EA) acquired Glu Mobile last year for $2.1 billion.
Take-Two said its own transaction will close by June 30,2022.