Game maker Take-Two to buy Zynga for $11B
The rationale behind Take-Two Interactive’s $11 billion purchase of Zynga can be summed up in two words: GTA Mobile.
Grand Theft Auto V, developed and published by Take-Two subsidiary Rockstar Games, is one of the most successful video games of all time, selling more than 155 million copies since its release in 2013. But it could be even bigger. Unlike competitors such as Roblox and Fortnite, GTA V is only available on computers and consoles, limiting its potential user base at a time when smartphones are increasingly expanding the audience for video games.
For Take-Two, the deal is a massive — and some say desperate — gamble late in the game. All of Take-Two’s major rivals made their big mobile acquisitions years ago at what now look like bargain prices. Zynga, which got its start making an online poker game, was once a leading social game publisher but has since moved to mobile, with mixed results. Somehow, it’s cashing out in the video game industry’s biggest deal ever.
Take-Two shareholders responded Monday by selling the stock, causing the biggest intraday drop in 12 years. The 64 percent premium offered over Zynga’s share price last Friday seemed to some investors a high price to pay for a lateto-the-party deal.
For some analysts, the deal still makes sense. The global mobile gaming industry is more lucrative than it’s ever been, generating $93 billion in revenue 2021, accounting for more than half of the total market, according to estimates from industry researcher Newzoo. As the pandemic kept people homebound, more phone users downloaded games, making mobile the “biggest and fastest growing content segment” in gaming, according to Mat Piscatella, an analyst with the NPD Group.
But Take-Two has few internal studios dedicated to mobile development, which is why Chief Executive Officer Strauss Zelnick is gambling that San Francisco-based Zynga will fill the gap. In a conference call with investors Monday morning, Zelnick said he thinks Take-Two has “the best collection of console and PC intellectual property” but that the company has failed to take advantage on mobile platforms. “Zynga’s best-in-class studios can help us develop that property,” he said.
Take-Two, the fourth-biggest video game publisher in the U.S., has struggled to compete in the fast-growing mobile market. Rival Activision Blizzard Inc. purchased Candy Crush developer King in 2015 for about $6 billion and has turned it into an integral part of its business. Electronic Arts Inc. has its own suite of mobile hits such as Star Wars: Galaxy of Heroes, and purchased the mobile powerhouse Glu Mobile last year for $2.1 billion. Even Nintendo Co., which has traditionally bucked industry trends, found success in the mobile marketplace with games like Fire Emblem Heroes and Mario Kart Tour, which made an estimated $2 million in revenue last November.
Once considered the inferior platform, mobile games have proven they can bring as much success on consoles. One of last year’s smash hits, Genshin Impact, from Shanghai-based Mihoyo Co., generated more than $2 billion in revenue during its first 12 months on the market on mobile alone, according to SensorTower estimates. Genshin Impact was also one of the most downloaded games on consoles such as Sony Group Corp.’s PlayStation last year.
Take-Two’s initiatives in mobile gaming so far have flopped. A 2014 mobile version of the popular game BioShock was panned and eventually removed from the Apple Store. Mobile versions of franchises like Civilization and XCOM were well received but not commercial hits, largely because of their premium prices. The XCOM 2 Collection launched at $25 on iOS and Android, alienating potential players. Successful mobile games are almost always free-to-play, generating revenue from ads and inapp payments.
The New York-based company needed a stable of developers with the expertise to make free-to-play mobile versions of hugely popular franchises like Grand Theft Auto and Red Dead Redemption. The publisher is betting billions that Zynga has the right people and infrastructure in place.
“I think it’s a shrewd move by Zelnick to reposition Take-Two as a game publisher that can cater to the full breadth of the market,” said Joost van Dreunen, former CEO of gaming research firm SuperData Research and a professor at New York University’s Stern School of Business.
Zynga, founded in 2007 by entrepreneur Mark Pincus, skyrocketed to success by developing games for Facebook such as Zynga Poker and FarmVille. Zynga went public in 2011, raising $1 billion and was briefly valued at more than Electronic Arts, but it struggled in subsequent years as Facebook changed its algorithms and social games became less popular.
Zynga recovered by pivoting to mobile, where it found success with titles like Wizard of Oz Slot Machine Game and Harry Potter: Puzzles & Spells.