Take-Two Interactive Buying Zynga: What Investors Should Know

January 11, 2022

What happened?

Investors saw a record haul of mergers and acquisitions (M&A) in 2021 as deal activity picked up globally to hit a record US$5.8 trillion. Yesterday, there was another deal to add to the 2022 list.

In the US, gaming giant Take-Two Interactive Software Inc (NASDAQ: TTWO) announced its intention to acquire mobile gaming specialist Zynga Inc (NASDAQ: ZNGA).

The cash and stock deal, valued at US$12.7 billion, would see Take-Two, the creator or hit games such as Grand Theft Auto and Bioshock, take over the mobile games developer behind hits such as Farmville and Words with Friends.

Zynga stock soared nearly 40% in response to the deal while Take-Two shares fell to close the day 13% down.

But was the market’s reaction a fair reflection of the deal’s merits?

So what?

Gaming has become an intensely competitive space and “casual gaming” has been one area where the traditional “hardcore” games developers have lacked a presence in.

For casual gamers, who play in a social arena occasionally and don’t need the cutting-edge graphics of consoles or desktops, games played on smartphones are the default.

That significant presence in the mobile space is what Zynga possesses. It also happens to be the fastest-growing segment of the market and one that has enormous monetisation potential (see below).

With the deal, Take-Two will see its percentage of net bookings from mobile rise to over 50% in fiscal 2023, from just 12% in 2022.

Now what?

Investors of the combined entity will have exposure to one of the world’s biggest developers of both console and mobile gaming. The deal is expected to close in the third quarter of 2022.

Zynga stock, having performed well initially after the pandemic rebound from the March 2020 lows, is actually down 12% over the past year (even after yesterday’s 40% pop).

Meanwhile, Take-Two shares have done even worse, down 30% over the past year. However, both stocks have beaten the S&P 500 Index over the past five years – with the two gaming firms posting triple-digit returns.

For investors who believe in the long-term growth potential of the gaming industry, the combination of Take-Two Interactive and Zynga should be a positive longer term.


Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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