Wall Street analysts on Friday praised social game publisher Zynga (ZNGA) for its planned acquisition of Helsinki-based mobile game studio Small Giant Games, creator of the hit franchise “Empires & Puzzles.” Zynga stock jumped on the news.

San Francisco-based Zynga announced late Thursday that it agreed to buy Small Giant for about $700 million. It will first acquire 80% of the Finnish company for $560 million, with $330 million in cash and the rest in stock. Zynga plans to acquire the remaining 20% of the firm over the next three years at valuations based on profit goals.

It will use the acquisition to expand its game portfolio, which now includes “Words With Friends,” “Zynga Poker” and “FarmVille.” Zynga expects the deal to be accretive to earnings in 2019.

Zynga stock rose 1.1% to 3.63 on the stock market today. Earlier in the session, it was up as much as 6.7%. It briefly climbed above its 50-day moving average line before retreating, but remains well below its 200-day line.

‘Wonka’ Game Boosts Fourth-Quarter Outlook
Zynga also raised its guidance for the fourth quarter based on strong performance of core games and new title “Wonka’s World of Candy.” It now expects adjusted earnings of $33 million on sales of $243 million. That’s up from its prior outlook for adjusted earnings of $32 million on revenue of $235 million.

Morgan Stanley called it a “winning strategy” in describing Zynga’s purchase of Small Giant. The deal will increase Zynga’s exposure outside North America, the investment bank said.

Stifel analyst Drew Crum said the deal “bolsters Zynga’s already robust pipeline” of games. Small Giant is developing a new game with a possible release in 2019 or 2020, he said. Crum reiterated his buy rating on Zynga stock with a price target of 4.75.

Acquisition ‘An Expensive Christmas Gift’
“Zynga has treated itself to an expensive Christmas gift,” Wedbush analyst Michael Pachter said in a report. The Small Giant deal is Zynga’s biggest acquisition to date. It tops the $527 million it paid for U.K.-based game developer Natural Motion in 2014.

Pachter maintained his outperform rating on Zynga stock. But he cut his 12-month price target to 5 from 6 to reflect the broader market pullback.

KeyBanc Capital Markets analyst Evan Wingren said the deal is expensive, but offers “big potential.”

Publication: Investor’s Business Daily| Game Developer Zynga Gets Positive Reviews For Small Giant Acquisition

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