10 January Take-Two is the publisher of series of games like GTA, Red Dead Redemption and Mafia - announced the purchase of mobile game developer Zynga for $12.7 billion. Publisher could overpay for unprofitable Zynga, which upset investors.
Details of the deal
7 January, Zynga shares were worth 6 $. Take-Two offered to shareholders on 64% more - 9,9 $. Given Zynga's debt, Acquisition cost Take-Two $12.7 billion. The publisher will pay the owners of Zynga with its own shares and money. If companies get regulatory approval, the deal will be closed in April-June 2022.
Zynga Financial Results
Zynga is a developer of mobile games like FarmVille, CSR Racing и Empires & Puzzles. The main income of the company is the sale of in-game items and advertising..
In recent 10 quarters, starting from 2019, Zynga's quarterly revenue increases by at least 40%. Despite this growth, the company is still unprofitable. Even a pandemic, when people started playing more, did not help the developer reach a stable profit. The problem is high development and advertising costs.. So, in recent 12 months, these costs amounted to approximately 60% from proceeds, or nearly all gross profit. As a result, operating profit of Zynga was a little more than zero — 29 million. Net loss for the last 12 months - 90 million dollars.
According to Zynga, in 2022, its revenue will grow double-digit, but due to marketing costs, the developer plans to increase operating margins only in the next few years.
Планы Take-Two
According to Take-Two, Mobile games are the fastest growing segment in the industry, which in the next three years will grow by an average of 8%. The publisher expects, that after the takeover, its share of mobile gaming revenues will increase from 12% in fiscal year 2022 to 50% in fiscal year 2023. And total revenue will grow by an average of 14% from 2021 through fiscal year 2024. It's not bad, since in fiscal year 2022, according to Take-Two's own forecasts, her own sales won't increase at all.
And for fast-growing Zynga, the publisher will have to pay with fast-growing debt. Take-Two didn't say, what proportion of the 12.7 billion will be cash. At least it will be $ 2.7 billion, which the company will be issued by J. P. Morgan Bank. Exactly how much Take-Two's debt will increase, also unknown. In the meantime, the company still has an excellent balance sheet: roughly $2 billion in liquid money and near-zero debt.
What about stocks
On Take-Two's announcement to give Zynga shareholders a hefty premium, the mobile developer's shares jumped by 41%, to 8,4 $. This is a good chance to get out of stocks, which from February 2021 to January 2022 fell by 50%, with 12 to 6 $.
But Take-Two shares, which also fell throughout 2021, fell in price by 13%, to 143 $. Probably, investors did not appreciate the prospects of Zynga, as well as future growth in the debt burden.
