Zynga (ZNGA 3.6800, +0.09, +2.51%) is trading higher after the company
acquired and raised guidance for the fourth quarter yesterday afternoon. The
mobile game maker is acquiring Finnish developer, Small Giant Games, best known
for its Empires & Puzzles franchise.
From Zynga's release: "The game successfully blends approachable Match-3 battles with deeper gameplay elements including Hero Collection, Base Building and Social Alliances. Since its launch 18 months ago, Empires & Puzzles has repeatedly broken into the Top 10 Grossing Games on the Google Play Store and Apple App Store. The game has been downloaded over 26 mln times and expands Zynga's international and Android audiences."
Zynga will acquire 80% of Small Giant for $560 mln, comprised of ~$330 mln in cash and $230 mln of unregistered Zynga common stock. Zynga will purchase the remaining 20% of Small Giant over the next three years at valuations based on specified profitability goals.
Despite the fact that Zynga will be issuing ~60 mln new shares, the deal is expected to be accretive to Zynga's profitability and be a meaningful growth driver in 2019 and beyond.
Zynga also raised its fourth quarter outlook. The company boosted its bookings guidance to $260 mln from $250 mln and its profit guidance to $33 mln from $32 mln.
The company continues to be a consolidator in the mobile gaming space where there are few barriers to entry. Zynga is attracted to franchises that have profitable staying power. Zynga has a ~$3.1 bln market capitalization and trades at ~22x earnings, a discount to mobile gaming peer Glu Mobile (GLUU 7.28, -0.44, -5.76%) but a premium to larger the larger console-focused video game developers.
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