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Zynga’s headquarters in San Francisco.
Justin Sullivan / Getty Images
Zynga
stocks are rising on Tuesday, the day after video game publisher Electronic Arts said it was buying
Glu Mobile
for $ 2.4 billion.
Zynga
the shares advanced 3.1% to $ 11.36 in the afternoon trading.
With Glu (ticker: GLUU) practically sold to EA (EA), it is possible that investors are contemplating the 36% premium that EA agreed to pay for Glu and what that could mean if rival mobile publisher Zynga (ZNGA ) became an acquisition target.
With EA probably out of the picture as a potential suitor – although the company has $ 6.7 billion in cash and cash equivalents, according to Bloomberg data, and without 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 considerably larger than Glu, with a market cap of $ 12.29 billion, according to data from Bloomberg. It is projected to generate adjusted profit of $ 380.9 million on sales of $ 2.25 billion this year.
Here in the Barron’s, we like Zynga’s shares and previously published a positive story about its appreciation potential, arguing that the company is well positioned to grow amid the vast mobile gaming market. Shares have advanced 26% since our October 30 story, with the S&P 500 index up 20%.
See how several potential Zynga buyers in the video game industry compare:
Take-Two Interactive
Take-Two has $ 2.42 billion in cash and cash equivalents and only $ 187.4 million in debt. Its relatively low leverage and $ 974.6 million free cash flow suggest that it could increase debt to pay for an acquisition – especially with historically low interest rates. But Take-Two acquired handset developer Playdots for $ 192 million in cash last year and Social Point for $ 250 million in 2017. In its third fiscal quarter conference call, Take-Two president Karl Slatoff said that the two acquisitions gave Take-Two a “considerable platform” in mobile games.
Activision
Rival Activision has a more substantial $ 8.64 billion cash flow, but also carries a larger debt load of $ 3.61 billion, according to data from Bloomberg. With a free cash flow of $ 2.17 billion, Activision could probably buy Zynga. But would he want to?
Activision already has a large mobile video game division at King, which it bought for $ 5.9 billion in 2016. King reported reserves of $ 2.16 billion for 2020, and Activision has had some notable success with its Call of Duty title for mobile devices, suggesting that she can draw on her own franchises and experience to expand 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 data from Bloomberg. Its free cash flow totaled $ 513.3 million, and mobile reserves accounted for 5% of the company’s third fiscal quarter, reported on Tuesday. In the last nine months, mobile reserves accounted for 8% of revenue.
As of Tuesday, Ubisoft executives did not seem very interested in making a mobile acquisition. The company said it was partnering with the Chinese internet giant
Tencent Holdings
in a mobile title and plans to build cutting-edge games based on existing franchises and brands – similar to Activision.
Asked by Barron’s if it was for sale, Zynga replied: “We don’t comment on speculation.”
Zynga is expected to release the results on Wednesday after the closing. The consensus estimate of adjusted earnings per share in the fourth quarter is 8 cents on sales of $ 679 million. The profit call can provide insight into the possibility of a sale.
Write to Max A. Cherney at [email protected]