Zynga shareholders will get $9.86 per share, including $3.50 in cash and $6.36 of Take-Two stock. This transaction reflects a large 64% premium to Zynga’s current value of $6 per share.
[Updated: 1/10/2022] Take-Two To Acquire Zynga Take-Two Interactive (NASDAQ: TTWO) has announced its plan to acquire Zynga (NASDAQ: ZNGA) in a deal valued at $12.7 billion. Zynga shareholders will get $9.86 per share, including $3.50 in cash and $6.36 of Take-Two stock. This transaction reflects a large 64% premium to Zynga’s current value of $6 per share. [ 1] We have long maintained our view that ZNGA stock is undervalued, given its decline of over 37% over the last one year, compared to a large 23% rise for the broader S&P500. Declining user engagement levels compared to the pandemic, and changes to Apple’s ad tracking policy are some of the reasons why ZNGA stock was being weighed down over the recent quarters. Zynga over the recent years has made multiple acquisitions and improved its revenue growth, a trend which is expected to continue going forward, as well. The stock price of ZNGA is up over 50% in after hours trading. Our coverage on Zynga, which includes Zynga Revenue Comparison, Zynga EBITDA Comparison, and Zynga Valuation, among others, provides more details on the company’s financial performance. While ZNGA stock will likely see higher levels today, it is helpful to see how its peers stack up. Check out Zynga Stock Comparison With Peers to see how ZNGA stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons. Below you’ll find our previous coverage of ZNGA stock where you can track our view over time. [Updated: 12/7/2021] ZNGA Stock Update The stock price of Zynga (NASDAQ: ZNGA) continues to underperform its peers as well as broader indices. While the S&P500 index has seen a rise of 9% over the last six months, ZNGA stock is down over 40%. Now, most of the gaming stocks, including TTWO and EA, have also underperformed the broader markets with negative returns of over 10% in the last six months, still faring better than ZNGA. ATVI stock is also down over 40% over the last six months, but it has its own stock-specific issues. Overall, user engagement levels for gaming were very high last year, when people were confined to their homes, but now with economies opening up, engagement levels are lower compared to last year. For Zynga, such a large stock decline is unwarranted, in our view. Other than falling user engagement levels, what has impacted ZNGA stock is rising competition from the likes of Roblox, a gaming platform where users can play games developed by other users in a metaverse (refers to a virtual reality environment where users can interact with each other), and there are concerns over Apple’s policy on in-game advertising. Apple released a privacy update for iOS in April, making it hard for applications to track iPhone users without their consent. This ad-tracking change is likely to result in higher player acquisition costs for Zynga. That said, the advertising growth of nearly 2x in Q3 2021, also aided by Rollic’s hyper-causal gaming portfolio acquisition, was better than the street estimates. The management also raised its full-year outlook and it has new game launches slated for Q4 and 2022, which, along with its Chartboost acquisition this year, is likely to bolster the top and bottom line growth going forward. Going by our Zynga’s valuation of a little over $10, based on expected EPS of $0.38 and a P/E multiple of 27x, there is an upside potential of over 60% from the current levels of around $6. In fact, the $11 estimate as per average of analyst forecasts, reflects an even larger 73% upside from the current levels, clearly pointing that ZNGA stock is undervalued currently, and investors can use the current dip as a buying opportunity for strong gains in the long term. But what about the near term, given that ZNGA stock has seen a fall of 12% in a month? Going by its historical performance, there is a slightly higher chance of a fall in ZNGA stock over the next month. Out of 313 instances in the last ten years that ZNGA stock saw a twenty-one day fall of 12% or more,154 of them resulted in ZNGA stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 154 out of 313, or only a 49% chance of a rise in ZNGA stock over the coming month. See our analysis on ZNGA Stock Chances of Rise for more details. So, if this follows its historical pattern, ZNGA stock may remain sideways in the near term. However, given that the stock is undervalued with a large upside potential, we still find the current levels to be attractive. Wondering how Zynga’s peers stack up. Check out Zynga Stock Comparison With Peers to see how ZNGA stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons. [Updated: 9/22/2021] ZNGA Stock Decline The stock price of Zynga (NASDAQ: ZNGA) has seen a decline of 6.5% over the last week, while it is down 22% year-to-date. ZNGA stock has seen a gradual decline since it reported sluggish Q2 results in early August. Despite the recent acquisition of Rollic, the earnings were well short of our estimates, and there are rising concerns if Zynga can seen a meaningful earnings expansion over the coming years, something which the company has delivered in the past.
