Game On: Zynga Reportedly Emerges As M&A Target

Zynga, Inc. ZNGA shares spiked Tuesday after a report that the company is a potential takeover target.

The Analyst:

Jefferies analyst Timothy O’Shea maintained a Buy on Zynga with a $5.25 price target.

The Thesis:

Zynga has become a takeover target after drawing preliminary interest from other video game developers, according to a Bloomberg report.

O’Shea said Zynga is an attractive asset with a portfolio of valuable intellectual property plus significant development, publishing and analytics assets. (See his track record here.)

“Management has successfully pivoted the company toward mobile gaming and recurring revenue, and with a 20-percent EBITDA margin in its sights (up from zero two years ago) the timing makes sense,” the analyst said.

Potential buyers could be media, technology, gambling/casino or other rival gaming companies, but the talks sound preliminary, he said.

Video games are the fastest growing form of media and mobile gaming is the fastest growing segment in video games, O'Shea said. The global mobile video game market is expected to grow 25 percent year-over-year to $70 billion in 2018, he said.

“In today’s world, cross-platform play means that games like 'Fortnite' are available across console, PC and mobile. It makes sense game publishers would want to beef up their mobile development capacity."

While Zynga management said in May that there isn’t a for-sale sign on the company, the company indicated that potential suitors are always welcome to approach the board.

Price Action:

Zynga shares were down 2.52 percent at $4.25 at the time of publication Wednesday.

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