Piper Jaffray: Zynga Playing Defense with OMGPOP Acquisition

In a research report published today, Piper Jaffray said Zynga Inc.'s

new deal with OMGPOP has shed light on a complicated strategy. According to Piper Jaffray, “Yesterday Zynga announced the acquisition of OMGPOP, the maker of "Draw Something" (a.k.a. Draw). We estimate OMGPOP is on pace to generate $40m to $50m in annual bookings, implying a 4x to 5x EV/bookings multiple. We believe M&A is the right choice in OMGPOP's unique case. With OMGPOP, Zynga is playing defense and effectively paying to protect its 15m mobile DAU base against encroaching competition, while at the same time lessening dependence on Facebook. In contrast, Zynga's 2010 NewToy acquisition was an opportunistic acquisition. NewToy was a small, non-threatening start-up that Zynga transformed into a global empire (i.e. Words with Friends).” Piper Jaffray reiterates its Overweight rating and $16.50 PT on Zynga, which closed yesterday at $13.72.