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- Take-Two Interactive (NASDAQ:TTWO) shares have sold off sharply in the wake of its announcement that it would acquire Zynga (NASDAQ:ZNGA) for $12.7 billion, prompting BMO Capital Markets to upgrade the video game publisher.
- Analyst Gerrick Johnson upgraded the stock to outperform from market perform, but kept the $180 price target, noting that the Zynga acquisition is likely to "smooth earnings variability" while also offering "compelling" synergy opportunities.
- "[Take-Two] owns some of the most iconic video game properties, yet has underleveraged these properties onto mobile," Johnson wrote in the note. "We believe [Zynga] provides the capabilities to do so. Furthermore, we have been impressed by ongoing strength of "Grand Theft Auto," which continues to drive stronger than expected engagement."
- Take-Two (TTWO) shares are up more than 1.5% to $150.70 in early Wednesday trading, following two days of declines since it announced the deal.
- Johnson added that the Zynga acquisition is a "good deal" for Take-Two, as it provides them scale in the mobile games industry. Additionally, at $12.7billion, Zynga is valued at 14.5 times enterprise value, which the analyst added was a "very attractive valuation," citing the company's expected $875 million in adjusted EBITDA for 2023.
- While BMO may like the deal, Moffet Nathanson downgraded Take-Two (TTWO) on Tuesday, noting that the deal came as a "surprise" to the investment firm, prompting questions about organic growth.