Take-Two’s ‘dramatic change of heart’ on free gaming prompts downgrade

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Take-Two Interactive Software Inc. is making a big bet on mobile and free-to-play gaming with its $12.7 billion deal for Zynga Inc., and at least one analyst isn’t sold on the strategic turnaround.

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MoffettNathanson’s Clay Griffin lowers his rating on Take-Two shares TTWO,
+1.82%
Buying Tuesday to stay neutral, arguing that the company plays for Zynga ZNGA,
+3.27%
Takes the company away from the organic-growth story and adds more exposure to the competitive world of mobile gaming as Take-Two.

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Griffin was surprised by Take-Two’s interest in Zynga, as its management team once compared the business of free-to-play gaming to playing the lottery, seeing a significantly lower chance of making a hit. Take-Two has since made more “targeted bets” on mobile, through acquisitions of developer Playdots and others, but its big deal for Zynga represents “a dramatic change of heart” in Griffin’s view.

“While views clearly can and should change when necessary, this deal is clearly not in line with the original narrative,” he continued. Griffin previously focused Take-Two largely on organic growth, with the belief that it could achieve success through its own intellectual property and strong execution.

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Amid Take-Two’s strategic change, Griffin argued it was “impossible”.
Be concerned about the health of the original thesis.” Take-Two may still be able to drive strong margin and cash-flow growth through its foundation in AAA console and PC gaming, but regardless, Tech-Two The traditional part of Too’s business is “now part of a larger and undeniably different story. ,

After Billions of Acquisitions, Zynga Still Sold for Less Than Its End-2011 IPO Price

KeyBanc Capital Markets analyst Tyler Parker took a different view of the deal. Take-Two shares fell 13% in Monday’s session after the deal was announced, but Parker thinks the deal is attractive and upgraded the stock to overweight on Tuesday from the sector.

“We prioritize mobile exposure among traditional publishers, and TTWO is gaining a mobile asset with a strong five-year track record,” he wrote. “Combined, the entity should be able to deliver strong and stable growth that is more focused on recurring revenue than TTWO standalone.”

Shares are up about 1% in Tuesday’s session. They have declined 16% over the past three months as the S&P 500 SPX,
+0.20%
has increased by about 6%.

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