Things to Like About Zynga

On Jan. 10, mobile game developer Zynga (ZNGA) announced that it is being acquired by Take-Two Interactive (TTWO 0.78%) for $9.86 per share, which will be $3.50 in cash and $6.36 in Take-Two stock. The companies hope to close the deal by the end of June.

If you're a Take-Two shareholder, you may be wondering what's so great about Zynga. In this video from Motley Fool Backstage Pass recorded on Jan. 10 -- just after the deal was announced and before the video participants had time to dig into the news -- Fool contributor Jon Quast talked about Zynga stock and why it's one of his favorite video game companies. In his opinion, acquiring a company of this caliber and scale should be exciting for Take-Two shareholders.

Jon Quast: Zynga. ZNGA. This is the mobile game company. Some well-known games that you play on your phone. It's appropriate I think that I pick this one because I had this ranked the highest of us four, I had it ranked at number three on the premise that as if the announcement this morning hadn't happened. As we're creating the show, as I said at the outset, we were not expecting Take-Two to acquire Zynga, two of the companies we're talking about today, and it changes things up a little bit. We'll have to digest that news a little bit more.

But just looking at Zynga on its own merits here, one of the things that I have really liked about Zynga is that yes, its growth has slowed down. I think that's why you've seen the stock price tumble as well. But as far as its user base that it has installed, that has continued to really tick up and having over a 100 million active users on Zynga games that is that's really big and the growth rate there has been really good. If you can keep the audience engaged, active, there's a chance that they're going to deposit some money into the platform in the future. Bookings have been high for the company, but have pulled back a little bit recently.

Another thing that I like about Zynga is that, hold on, what was I going to show here? The other thing was Zynga is just as, it's advertising. It has the way that it monetizes its game. If you want to buy things in the game, whatever that may be, you deposit money, you purchase the in-game items. That's all fine and well. But what it started doing in more recent quarters is that it's really started growing its advertising business. Because it has such an engaged audience, since the eyeballs are there, advertisers are looking for return on investment, right? They are looking for ways that they can put their stuff out in front of people. By being an advertising player, as well Zynga has been able to begin growing that source of revenue. We've seen this in recent quarters where the advertising revenue for Zynga is growing faster than the other parts, components of its revenue. I'm a big believer in digital advertising in general, taking market share from more traditional advertising.