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Zynga headquarters in San Francisco.
Justin Sullivan / Getty Images
Zynga
Shares rise Tuesday, a day after video game publisher Electronic Arts said it was buying
Glu Mobile
for $ 2.4 billion.
Zynga
stock rose 3.1% to $ 11.36 in afternoon trading.
With Glu (ticker: GLUU) nearly sold to EA (EA), investors may be considering the 36% premium EA agreed to pay for Glu and what that could mean if rival mobile publisher Zynga (ZNGA) became a takeover target.
With EA likely out of the picture as a potential suitor – although the company has $ 6.7 billion in cash and equivalents and little debt, according to Bloomberg data – Zynga could be courted by companies such as
Take-Two interactive software
(TTWO),
Activision Blizzard
(ATVI), or
Ubisoft Entertainment
(UBI. France).
Still, Zynga is a significantly larger company than Glu, with a market value of $ 12.29 billion, according to Bloomberg data. It is expected to generate adjusted profit of $ 380.9 million on sales of $ 2.25 billion this year.
Here at Barron’s, we love Zynga stock and previously published a positive story about its potential benefit, arguing that the company is well positioned for growth amid the massive mobile games market. Shares are up 26% since our October 30 story, while the S&P 500 index gained 20%.
Here’s how several potential Zynga acquirers in the video game industry stack up:
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 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 and Social Point for $ 250 million in 2017 last year. “comprehensive platform” in mobile games.
Activision
Rival Activision has a larger war chest of $ 8.64 billion, but also carries a greater debt of $ 3.61 billion, according to Bloomberg data. With free cash flow of $ 2.17 billion, Activision can probably afford to buy Zynga. But would it?
Activision already has a large mobile video game division in King, which bought it in 2016 for $ 5.9 billion. King reported bookings of $ 2.16 billion for 2020, and Activision has had remarkable success with his Duty mobile title, suggesting it might be looking 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. Free cash flow was $ 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 accounted for 8% of sales.
On Tuesday, Ubisoft executives didn’t sound too interested in a mobile acquisition. The company said it partnered with the 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 replied, “We will not comment on speculation.”
Zynga is expected to report the results Wednesday after the closing bell. The consensus estimated adjusted earnings per share for the fourth quarter is 8 cents on revenue of $ 679 million. The income call could provide insight into the possibility of a sale.
Write to Max A. Cherney at [email protected]