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Why Take-Two Interactive Stock Is Sinking Today

By Keith Noonan – Jan 10, 2022 at 12:10PM

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Investors aren't happy with the gaming publisher's plan to purchase Zynga for $12.7 billion.

What happened

Take-Two Interactive (TTWO 0.99%) announced Monday that it plans to purchase mobile games publisher Zynga (ZNGA), and the market is apparently bearish on the deal. Take-Two's share price was down by roughly 14.5% as of 11:55 a.m. ET.

According to the company, it will pay $12.7 billion in cash and stock for Zynga. That works out to an acquisition price of $9.86 per share, 64% higher than Zynga's price at the end of last week's trading. Investors appear to think that's too much of a premium.  

A character driving a car in Grand Theft Auto V.

Image source: Rockstar Games.

So what

With growth stocks -- and video game stocks in particular -- generally in the midst of a steep decline, investors may think this is not the right time for Take-Two Interactive to be making big acquisitions. Thus far, Monday is looking broadly like another day of steep pullbacks for growth-dependent technology stocks. The tech-heavy Nasdaq Composite index was down roughly 2% as of 11:55 a.m. ET, so the broader market's momentum is likely also a significant factor in Take-Two's stock slide.

Now what

The market is sending a clear signal that it thinks that Take-Two Interactive is overpaying for Zynga, but I think the deal stands a good chance of working out over the long term. Take-Two has been gearing up to make a bigger play in the mobile games category, and this acquisition should help the company significantly accelerate this initiative.

Zynga itself has been on a major acquisitions push over the last decade, and the company now has a formidable collection of development studios, as well as numerous established franchises including FarmVille, Words With Friends, and Toon Blast. By bringing the mobile-focused publisher into the fold, Take-Two Interactive should be able to make even better use of its own franchise catalog, accelerate its growth on smartphone and tablet platforms, and put itself in a better position to take advantage of emerging opportunities such as augmented reality and the metaverse. 

Keith Noonan owns Take-Two Interactive and Zynga. The Motley Fool owns and recommends Take-Two Interactive and Zynga. The Motley Fool recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

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