ZyngaZNGA is expanding its gaming portfolio with the acquisition of Helsinki-based mobile game studio, Small Giant Games. The buyout is expected to close on Jan 1, 2019 and will be accretive to Zynga's earnings in 2019.
Zynga will acquire 80% of Small Giant for $560 million, comprising approximately $330 million in cash and $230 million of unregistered Zynga common stock. The company will purchase the remaining 20% of Small Giant over the next three years at valuations based on specified profitability goals.
The company also updated its fourth-quarter 2018 guidance. Zynga now anticipates adjusted EBITDA to be $33 million, which is more than $32 million previously guided. Non-GAAP bookings will improve by $10 million to $250 million.
Mobile Games Driving Zynga
Small Giant is well known for its hit franchise Empires & Puzzles that has featured on the Top 10 Grossing Games list on the Google Play Store and Apple App Store, since its launch 18 months ago. Notably, the game has been downloaded more than 26 million times.
The acquisition is expected to expand Zynga's live service portfolio. The company has been focusing on expanding its footprint into Match-3 category of games. Zynga has already launched its first Match-3 mash up title, Wonka's World of Candy . The addition of Empires & Puzzles will further strengthen its footprint in the category.
Zynga Inc. Revenue (TTM)
Moreover, Zynga is set to develop and publish a new Harry Potter Match-3 mobile game in the second half of 2019.
Notably, surge in mobile gaming audience is benefiting the company. Mobile contributes a significant portion - almost 91.1% - to the top line. Mobile average DAUs increased 10% year over year to 20 million in the last reported quarter. Further, mobile bookings and revenues increased 23% and 9%, respectively, on a year-over-year basis.
Moreover, acquisitions of Gram Games and Peak Games have expanded Zynga's content portfolio. The company is already working to expand the Merge! franchise. It is also developing two mobile games based on FarmVille and CityVille brands.
Zynga has also inked a multi-product licensing agreement with Disney DIS to create a new mobile game on Star Wars .
Zacks Rank & Stocks to Consider
Zynga currently has a Zacks Rank #3 (Hold).
Churchill Downs CHDN and Take-Two Interactive TTWO are better-ranked stocks in the same sector. While Churchill Downs flaunts a Zacks Rank #1 (Strong Buy), Take-Two Interactive has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Expected long-term earnings growth rate for Churchill Downs and Take-Two Interactive is 20% and 17.1%, respectively.
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