Of the flurry of merger and acquisition activity that’s been flooding the market recently, one that’s received plenty of investor attention is Take-Two Interactive‘s (NASDAQ:TTWO) upcoming purchase of Zynga (NASDAQ:ZNGA). In this segment of Backstage Pass, recorded on Jan. 11, Fool contributors Jose Najarro and Demitri Kalogeropoulos discuss the much-anticipated deal.
Jose Najarro: A popular news article yesterday was, how Take-Two Interactive, a gaming company, purchased Zynga, another gaming company. For those not familiar, Take-Two Interactive, they make games for your typical PC and console base.
One department they have been lacking is a market that continues to grow, mobile gaming as it’s a lot easier to get casual gamers or casual people to just play mobile games.
Zynga is getting acquired. What I thought was pretty interesting is obviously Zynga has pretty cool games to grow. But to me, the biggest asset from this acquisition was that Take-Two Interactive is going to grab about 3,000 new employees.
Instead of trying to go poach employees from Zynga or poach employees from some other mobile gaming, they say screw it, let me just buy the whole company and get these mobile game developers to start developing my games into a mobile version.
I think that’s pretty interesting. This is just showing how even if you are a leader in the gaming industry with the console and PCs, the mobile market is still very strong out there.
Demitri Kalogeropoulos: Yeah, Jose. I just wanted to jump in on that too. That’s really interesting. It made me think of, I’m sure you remember when Activision Blizzard (NASDAQ: ATVI) bought King Digital this was in 2015. King Digital is the company that has Candy Crush.
For example, I think Zynga’s Farmville is the big one, but it sounds like an exact same strategy.
But Activision, that paid off really well for them. They’ve been using these mobile platforms in these free-to-play now with these battle royale sort of free-to-play mode.
They’ve got a Call of Duty version that’s on mobile and they use it as a funnel to get people into the premium version of the game, which is way more expensive, but introduce people in a free-to-play environment and they get comfortable with it and play on their casually.
The other thing I’ll mention though, that purchase was $6 billion back in 2015. I think this one is in the $17 billion range.
Prices have definitely gone up for everybody in the past six years. But the other thing is King Activision did have to take a hit there in the first year or two, profitability-wise, and there were a lot of these, the thing with these casual gamers as they’re not quite as attached as people who pay for these brands.
They had to shrink the audience size, what they thought they were buying, wasn’t actually what they bought, but it’s still a really good purchase. Just something to watch out for those Take-Two investors.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
