BLOG

Zynga brings mobile gaming muscle to Take-Two

January 17, 2022

Take-Two buy Zynga, logos on the screen.

Greg Sigel

SVP – North America

The proposed US$12.7bn acquisition of Zynga by Take-Two Interactive illustrates the increasing dominance of mobile in the computer gaming industry. Estimations by S&P Global Market Intelligence suggest the purchase price will be roughly four times Zynga’s expected 2022 revenue, with the company forecast to bring in turnover from some of the world’s most popular smartphone games, including Farmville, CSR Racing, and Words with Friends.

Take-Two has its own stable of best-selling titles – including Grand Theft Auto, Red Dead Redemption, NBA 2K, and Borderlands, according to Statista estimates, the majority of which were conceived and designed primarily for console and PC gamers. The company posted US$858m of revenue in the second quarter of FY22, up 2% on the same quarter of the previous year. And it now sees the acquisition of Zynga as a critical asset to the expansion of its turnover in the faster-growing mobile games market.

Take-Two had already pledged to use the expertise at Zynga to adapt its popular console franchises to run on smartphones and tablets, for example, with reports suggesting the newly enlarged company is set for a market capitalization of almost US$30bn spanning console, PC, and mobile devices[i]. Take-Two has also said that it expects the merger to deliver US$6.1bn in proforma net bookings, over half of which will come from mobile.

Revenue built on advertising, virtual goods, and in-game currencies

The deal looks like more than just the addition of market-leading mobile titles to the Take-Two portfolio. Zynga also brings a history of innovation and experimentation designed to customize the smartphone gamer’s experience to maximize revenue.

Its initial success was built on close integration with social media. For example – its first title Texas Hold’Em Poker was initially released on Facebook in 2007, quickly followed by Farmville on the same platform in 2009. The company also developed an API that helped developers build their own social games, though its reliance on external third-party platforms for its success has since diminished.

However, the company does continue to specialize in a free-to-play business model that relies on creating interactive gaming communities. Its platforms have also been designed from the ground up to encourage the buying and selling of virtual goods while attracting and making money from in-game advertising.

Zynga was also an early adopter of in-game currency, with Zynga Poker players buying and selling virtual currency to fund gambling chips and digital goods. More recently, management outlined their interest in using blockchain and non-fungible tokens (NFTs) after hiring a dedicated vice president of blockchain gaming and pledged to incorporate them into Zynga’s existing games and platforms.[ii]

Gaming M&A at record levels

The last twelve months have certainly been a good year for mergers and acquisitions in the computer gaming industry. Analysis from investment bank Drake Star Partners totted up US$23bn of investment in the first six months of 2021 alone.[iii] Notable deals included Microsoft’s deal for ZeniMax (US$7.5bn), ByteDance buying Moonton (US$4bn), Embracer buying both Asmodee (US$3.1bn) and Gearbox Software (US$1.3bn), and EA’s triple acquisition of Glu (US$2.4bn), Playdemic (US$1.4bn) and Codemasters (US$1.2bn).

Not every deal was focussed on the mobile gaming industry – Zenimax primarily bolsters Microsoft’s PC and console platforms and ecosystem, for example. But others – like Moonton (Mobile Legends), Codemasters (F1 Mobile Racing), and Playdemic (Golf Clash) add some of the world’s leading mobile titles to their buyers’ portfolio.

The smartphone segment is forecast to generate US$79bn of revenue in 2021, according to analyst firm Newzoo, up 4.7% year on year to account for almost half of the total (45%). Sales of tablet titles too are expected to be 2% year on year to be worth US$11.6bn. That trend is being driven by the consistent growth of mobile games at the expense of rival platforms. In contrast, sales of PC (down 2.8%) and console games (down 8.9%) both declined during the same period.

Take-Two Interactive’s acquisition of Zynga is expected to close in the first half of this year, providing Zynga doesn’t find a better offer elsewhere. The deal includes a 45-day period in which the company is free to negotiate with other buyers, something it may well choose to do given the purchase price is roughly on a par with the US$10 a share it commanded on its IPO a full ten years ago.

With 5G networks set to make the mobile gaming experience closer to that of gaming consoles,  it seems inevitable that more M&A deals for specialist smartphone game developers are just around the corner.


[i] Take-Two to buy ‘FarmVille’ maker Zynga for $11 bln in largest gaming deal, Reuters, 11th January 2022

[ii] What does Zynga see in blockchain?, gamesindustry.biz, 10th November 2021

[iii] Game deals for H1 2021 almost double total 2020 investments, gamesindustry.biz, 5th July 2021

Related Posts