Zynga Shares Fly Higher After Upgrade from Barclays

Barclays analyst Mario Lu upgraded Zynga shares this week from “equal weight” to “overweight.”

The analyst wrote in a note to investors, “We’ve been on the sidelines for Zynga’s past two acquisitions, but with its announcement to acquire Peak last week, we feel now is still a good time to accumulate shares.”

Lu is optimistic over the acquisition news of Turkish mobile gaming company Peak Games, which Zynga said it would acquire for $1.8 billion. The analyst sees “multiple opportunities” for acceleration in Peak bookings growth under Zynga’s leadership.

The company’s greater scale in bookings could help margins said Lu. He also argued that Zynga titles could benefit from Peak’s 12 million daily active users. The analyst wrote, “In short, we think the acquisition of Peak will be another inflection point for Zynga shares.”

He said that while the stock’s valuation looks “rich” at 18 times estimates for fiscal 2021 earnings before interest, taxes, depreciation, and amortization (Ebitda), many estimates don’t account for Peak and its potential to deliver earnings and bookings upside.

Lu also lifted his price target to $12 from $9.

It was not long ago that Zynga announced that it was buying Istanbul-based Peak Games. The deal will be paid for in $900 million in cash, and $900 million in Zynga shares.

Founded in 2010 by Sidar Sahin, Peak has developed the beloved game franchises Toon Blast and Toy Blast. Peak is expected to grow Zynga’s average mobile DAUs by more than 60% while strengthening Zynga’s international audience.

“We are honored to welcome Sidar and team to Zynga. Peak is one of the world’s best puzzle game makers and we could not be more excited to add such creative and passionate talent to our company,” said Frank Gibeau, Chief Executive Officer of Zynga. “With the addition of Toon Blast and Toy Blast, we are expanding our live services portfolio to eight forever franchises, meaningfully increasing our global audience base and adding to our exciting new game pipeline. As a combined team, we are well positioned to grow faster together.”

San Francisco-based Zynga said that Peak “brings a 100-person strong team and two Forever Franchises, Toon Blast and Toy Blast, that have consistently ranked in the top 10 and top 20 U.S. iPhone grossing games for over two years, respectively.”

It added that those franchises “add significant scale to Zynga’s live services and will be an additional driver of margin expansion over the coming years.”

“This is a monumental partnership not only for Zynga and Peak, but for the whole mobile gaming industry,” said Sidar Sahin, founder and Chief Executive Officer of Peak. “Both companies share a common vision — to bring people together through games. Peak’s culture is rooted in relentless learning and progress, so as we embark on this new chapter in our journey together with Zynga, we remain as committed as ever to our unique culture. We’re very excited for our combined future and what we will accomplish together.”
Zynga shares have gained 19% over the past month.

Disclaimer: We have no position in Zynga Inc. (NASDAQ: ZNGA) and have not been compensated for this article.