eResearch | Today, Zynga Inc. (NASDAQ: ZNGA), a popular U.S. mobile game developer, announced a US$1.8 billion acquisition of Peak Games, an Istanbul-based company best known for its mobile match-3 puzzle games, Toon Blast and Toy Blast.
The goal of the acquisition was to acquire Peak Games’ three main assets: (1) intellectual property, (2) international advertisement capabilities, and (3) human capital.
| According to Zynga’s transaction comments, Peak Games will add approximately US$300 million of revenue and US$60 million of EBITDA in the second half of 2020, valuing the transaction at 3x Revenue and 15x EBITDA on a full-year basis.
These valuation metrics bode well for Kuuhubb (TSXV: KUU; Buy; PT: $1.90) that currently trades at only 2x Revenue. To learn more about Kuuhubb, please read our previous reports: |
Sidar Sahin, CEO of Peak Games, and his team of 100 game developers and puzzle makers will join Zynga, with the acquisition expected to boost Zynga’s Daily Active Users (“DAU”) by 60% as the two gaming companies combine to grow a collective portfolio of eight major franchise titles.
Peak Games’ most popular titles Toon Blast and Toy Blast, together bring more than 12 million DAUs, in addition to being ranked within the top-20 games in the past two years for generating the most revenues.
Another key benefit to the acquisition is the opportunities Zynga now has to expand advertisement reach outside of the U.S. to Europe, where Peak Games is based.
The acquisition will be paid with US$900 million of cash and US$900 million of Zynga shares, with the deal expected to close in Q3/2020.
Peak Games
Peak Games is a Turkish game developer with over 3 million total mobile app downloads, according to Sensor Tower. The mobile games developer grew rapidly through support from European venture capital investment firms Humming Bird and Earlybird.
In 2017, Peak Games sold its mobile card games portfolio to Zynga for US$100 million in cash, which included games such as Spades Plus and Gin Rummy Plus, titles with the most market share within each of their respective game categories.
Though Zynga previously attempted to acquire all of Peak Games’ assets and intellectual property, Peak Games was reluctant to let go of its two most popular titles, Toon Blast and Toy Blast, which have become among two of the highest-grossing games on IOS and android platforms.
Zynga
Zynga is an American game developer headquartered in San Francisco, California, best known for its game on Facebook, Inc. (NASDAQ: FB) called Farmville, which reached 10 million DAUs within six weeks of launching.
Today, Zynga’s popular titles include Zynga Poker, Words with Friends, and CSR Racing.
In Q1/2020, Zynga reported record revenues of US$404 million, a 52% increase year-over-year, with total bookings of US$425 million, an 18% increase year-over-year, driven by significant growth from new games, Empires & Puzzles and Merge Dragons.
However, Zynga is still losing money on its bottom line with a net loss of US$104 million in Q1/2020, well below its guidance of US$78 million, attributed to increased costs from contingent consideration expenses and higher net increases in deferred revenue.
Since announcing the acquisition, Zynga’s stock price has risen by 5% to US$9.66 per share, with a total stock price increase of 59% in the last 12 months.
Mobile Gaming Industry
According to Newzoo, 2.4 billion gamers spent US$152B on video games in 2019, a 10% increase year-over-year; mobile games represented US$68.5 billion or 45% of the gaming market.
The mobile games market is expected to grow to US$94 billion by 2022, growing at a three-year CAGR of 11%.
COVID-19 Impacts on Gaming Industry
According to a research report by App Annie and the International Data Corporation (“IDC”), throughout the period of the pandemic in Q1/2020, mobile downloads reached a new quarterly record of 1.2 billion downloads, in addition to having the highest amount of consumer spending.
In March, mobile games experienced a 35% increase in downloads globally compared with the number of downloads in January, with expectations for continued growth in demand as consumers stay at home due to the pandemic.
Amid the COVID-19 crisis, the mobile gaming industry continues to be active in M&A activity, which is supported by the increase in digital adoption driven by societies in self-isolation. As governments begin to reopen economies and retailers increase online marketing spend, the gaming industry may continue to see high growth and increased M&A activity.
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