The Take-Two Deal Is a Game Changer for Zynga Investors
There’s been a lot going on with San Francisco-based video game developer Zynga (NASDAQ:ZNGA). For instance, the company is gearing up to present its fourth-quarter and full-year 2021 financial results, which could have a profound impact on ZNGA stock.
Also, Zynga subsidiary and Golf Rival game developer StarLark is “kicking off the Lunar New Year… with a series of themed in-game events set on a brand-new golf course.” So, golf and gaming fans can look forward to that.
These are notable developments, no doubt. Yet, there’s an event in progress that will likely have greater, more enduring significance for ZNGA stockholders.
Even beyond that, it could have a lasting ripple effect throughout the broader gaming community. So, let’s put down our game controllers for a moment and see what all of the buzz is about with Zynga.
A Closer Look at ZNGA Stock
When ZNGA stock was trending on financial message board Stocktwits on Jan. 10, I knew something major was happening.
The previous trading day, the Zynga share price was close to $6. At that time, the sentiment surrounding Zynga was largely pessimistic.
However, the next thing I knew, it was Jan. 10 and ZNGA stock rocketed above $8. By early February, the stock had cleared the $9 level, for a 50% gain in just a few days.
This was a much-needed shot in the arm for Zynga’s distressed shareholders. After a huge rally to $12.32 in early 2021 (probably fueled by Reddit users, though I can’t prove this), the Zynga share price slid relentlessly throughout the remainder of the year.
When ZNGA stock was languishing at $6, it felt as if the bear market would never end. Now, there’s a real chance that the stock could revisit its $12 peak and even go higher than that.
So, what prompted this startling rally?
Zynga Rises, Falls and Rises Again
As we’ve seen in the past, Zynga is unafraid to work with other tech-focused businesses.
In a prominent example of this, Zynga expanded its partnership with Snap (NYSE:SNAP) to create multiplayer games exclusively for Snap Games.
That took place in June of 2020, a time when video games were quite popular because people were stuck indoors and bored. As Covid-19 lockdowns persisted month after month in some regions, Zynga’s video games provided a fun and addictive way to pass the time.
This contributing factor — and probably a pump from Reddit traders — helped to push ZNGA stock to its peak. Zynga’s momentum seemed to fade, however, after the meme-stock moment passed and Covid-19 lockdowns ended.
Along the way, some shareholders gave up on Zynga, it seems. That’s a shame, really. After all, it only takes one positive catalyst to send a stock soaring. Moreover, the game of investing is typically won by the most patient players.
Gaming Gets Serious
As it turned out, Zynga’s shareholders didn’t even have to wait for the latest earnings report to get the catalyst they were looking for.
According to InvestorPlace contributor Joel Bagole, Take-Two Interactive (NASDAQ:TTWO) is acquiring Zynga for a whopping $12.7 billion.
While Zynga is known for the Farmville video game, Take-Two is revered by gamers for the Grand Theft Auto series of titles.
In other words, Zynga brings the fun, while Take-Two’s target audience includes serious gamers. The combination of the two companies should produce a powerful force in the market, covering a wide swath of video-game players.
The press release serves up some eye-popping data points. For one thing, the combined company will have “$6.1 billion in trailing 12-month pro-forma net bookings for the period ended September 30, 2021.”
Second, the transaction between Take-Two and Zynga is expected to deliver roughly $100 million of annual cost synergies in the first two years after the acquisition closes. Plus, over time, the transaction is predicted to provide more than $500 million worth of annual net bookings opportunities.
The Bottom Line
Video games are fun, but they’re also serious business. As Take-Two and Zynga join forces, gaming-industry competitors should be on notice.
Indeed, the gaming market might never be the same after this. It’s perfectly understandable, then, if ZNGA stockholders are feeling confident.
Sadly, some traders lost the investing game because they weren’t patient with Zynga. We can hope that they’ve learned a lesson about the value of staying in a trade.
Now, it’s up to Take-Two and Zynga to show what they’re capable of, in terms of revenues and profits. Most likely, the fiscal figures will be impressive and ZNGA stock will revisit its previous peak at some point.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
