Take-Two Is Playing the Long Game and Its Stock Is Cheap

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Take-Two Interactive, publisher of Grand Theft Auto, fell through last week after the company agreed to buy mobile game maker Zynga.

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Vadim Plyusik/Dreamstime.com

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A new wave of videogame consoles must have been the best of times for videogame makers. Game publishers like Activision Blizzard,
electronic Arts,
And Take-Two Interactive has historically benefited in the wake of console launches from Sony and Microsoft.,

But, as with so many things, the pandemic threw historical trends out the window. Sony (ticker: SNE) PlayStation 5 and Microsoft (MSFT) Xbox Series X were among the victims of the global semiconductor shortage. More than a year after its launch, it’s still nearly impossible to find a next-generation console.

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So, instead of enjoying a consolation-fueled rally-as baron’s The end of 2020 is predicted in a bullish story – game publishers underperforming the market.

Last week, Take-Two (ticker: TTWO), known for its big budget console and PC franchises like grand theft auto And red Dead Redemption, made a significant effort to recover his ship. The company has agreed to buy mobile game maker Zynga (ZNGA) for $12.7 billion.

Zynga, best known farm Ville And words with friends, gives Take-Two a wealth of data and mobile-advertising resources, as well as a sizable roster of game developers. Most of all, it brings scale, says Take-Two CEO Strauss Zelnick.

“I think it’s important — the opportunity to get $100 million in cost synergies in the near term, the opportunity to create $500 million annually in revenue synergies in relation to new game development,” Zelnick tells WebMD. baron’s, He noted that mobile-game development is faster than making games for consoles and PC, and the company should be able to leverage Zynga’s mobile expertise for its franchises. truly mobile-optimized grand theft auto Could be a hit for Take Two. And investors will ultimately reward the recurring revenue stream.

Zynga stock fell through hard times due to changes in Apple‘s
(AAPL) mobile operating system, which has limited the ability of Zynga and other online advertisers to track users.

Take-Two’s deal costs Zynga $9.86 per share. That’s a 64% premium to Zynga’s pre-deal price, but it’s still a 20% discount to the stock’s high of $12 from a year ago. Wedbush analyst Michael Pachter, who has a $12 target on Zynga, calls the deal a bargain for Take-Two. “Take-Two goes from 10% mobile to over 50%, making them a more stable producer than ever before with unclear release schedules for their big games,” Pachter wrote in an email. “I think it’s a great fit.”

Investors are not so sure. Take-Two shares sank 13% on Monday after the company announced the deal, though the stock recovered nearly half of those losses, closing Friday at $152.58. The deal is already winning over Wall Street analysts, and Take-Two shares may continue to trade higher. The stock is currently trading at about 23 times earnings estimates for the coming year, down from the three-year average of 28 times. At that average multiplier, Take-Two shares would be up more than 20% at $187.

Take-Two is planning to release a remastered version of its classic Grand Theft Auto V For the new console this year. This could provide a nice bump to Take-Two’s sales. But in the long term, consoles should become less important. With Zynga, Take-Two is in control of its destiny.

Write Connor Smith at [email protected]

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