Zynga Inc (NASDAQ:ZNGA) has acquired the majority stake at Small Giant Games for $560 million. The company has agreed to part with the lofty sum in exchange for 80% stake in Small Giant Games famed for the Empires & Puzzles role-playing game.
According to the financial terms of the agreement, Zynga will pay $330 million in cash and settle the remaining $230 million in new common shares.
All-Time Biggest Acquisition Deal
The deal stands as one of Zynga’s largest acquisition since it went public about seven years ago. Zynga has been burning through cash, reporting heartbreaking loses for the better part of its time in the exchange market save in 2017 where it posted modest earnings.
The company plans to turn Small Giants Games into an admirable cash cow especially now that Empire & Puzzles boasts over 26 million downloads since its launch a year and a half now. Statistics from App Annie indicate that Empire & Puzzles ranks as the 3rd highest grossing games in Google Play store.
The game that allows gamers to pick favorite heroes and battle other gamers are expected to become Zynga’s top-revenue generators according to the company’s CEO Frank Gibeau.
In a statement, Gibeau said that “We’ve been impressed by the quality and momentum of Empires & Puzzles as we add another Forever Franchise into Zynga’s portfolio. Small Giant has created an innovative game that delivers a unique player experience that engages over the long term. We are excited that Small Giant is joining Zynga as they enhance our next phase of growth.”
The CEO added that the acquisition is in line with the company’s growth strategy. Gibeau believes that it is time for the company to be “offensive” after a long period of scaling and growing.
Zynga’s stock performance
Meanwhile, Zynga’s stock has not been that much appealing over the past trading sessions. The shares have been shading value since the company went public. Although the shares posses fewer risks to investors due to their volatility of 0.27, on the flip side, they are less profitable.
As of this writing, Zynga’s stock has an analysts’ average price target of $4.48. The shares have an average broker rating of 1.96 representing a strong BUY based on Zacks 1-5 scale with 5 signifying a strong sale. During the Monday trading session, Zynga shares witnessed a 1.24% increase to close at $4.07.
The stock opened at $4.01 trading to a high of $4.15 and the day’s low of $3.99. As of Monday the company had a market valuation of $3.15 billion. It is safe to say that Zynga’s stock have a relatively low volatility given its previous closing price is a few cents shy of the company’s 52-week high of $4.57. The shares have gained almost a dollar from their 52-week low of $3.20.
Zynga’s Revenue Forecast
Zynga has revised its Q4 2018 annual revenue guideline (probably) due to the spending on Small Giants. Revenue for the Q4 2018 expected to be announced on February 06 has been increased from $235 million to $243 million. The company also slashed its expected net loss estimates from $2 million to a slightly lower $1.5 million.
Analysts covering the company have raised its revenue guideline by about 14.1% to $255 million. They have estimated the company’s earnings per share at $0.04, a rise from the company’s last EPS of $0.03.