Specialist
Former SVP at Zynga Inc
Agenda
- Take-Two's (NASDAQ: TTWO) operating environment and synergies and integration challenges with Zynga (NASDAQ: ZNGA)
- Nuances between mobile strategies of Take-Two, Activision Blizzard (NASDAQ: ATVI) and EA (NASDAQ: EA) – ability for Zynga to develop mobile versions of AAA console IP
- Zynga’s organic growth potential vs players such as King (NASDAQ: ATVI)
- Advertising growth outlook – IDFA (Identifier for Advertisers) implications, Chartboost growth strategy and potential headwinds
- Outlook for 2022 and beyond – further consolidation potential and metaverse developments
Questions
1.
What are the drivers for Take-Two’s proposed acquisition of Zynga? Why now and why might Zynga choose to merge with Take-Two?
2.
You bring up Take-Two’s 64% premium it came in on. Does this stem from EA outbidding the company for Codemasters and hoping the go-shop period comes and goes without any disruption? What are other reasons for potentially paying a healthy premium vs acquiring another mobile player for diversification purposes?
3.
A question in the market on the Microsoft-Activision deal is around any antitrust concerns. What’s the likelihood of this? Do you expect this to be a first inning of big tech getting more involved in gaming if the deal does go through?
4.
Might other companies want to go down a similar route to Microsoft? If so, who? Do you expect answers from Meta, Google or Amazon, or might there not be much response?
5.
How might Take-Two franchises such as Red Dead Redemption, Grand Theft Auto and NBA 2K fare in mobile form post-Zynga deal? Are there any issues around emulating how Activision successfully published Call of Duty as a mobile game?
6.
Many of Zynga’s biggest IPs have been acquired, so how do you expect it to manage organic IP creation? It hasn’t been a focus lately within its playbook.
7.
Might Take-Two-Zynga’s development pipelines be much longer than Activision Blizzard’s? The latter failed to make a mobile game out of the Crash Bandicoot IP and so went through Tencent for Call of Duty: Mobile. It’s planning to use NetEase for World of Warcraft and Diablo. Is Activision’s ability to extrapolate AAA content much more expedient vs Take-Two-Zynga, considering Zynga needs to expand its development capabilities past mass-casual?
8.
How soon might we hear about upcoming releases of Take-Two IP in mobile form? Is it two, three, four or five years out? The company has already announced it as a strategic priority, so I assume work would start as soon as the deal closes.
9.
You said Zynga might not be solely involved in any mobile development, so the strategic priority doesn’t shift greatly for the company. How might its sustainable organic growth rate shift? What might the business’s growth profile be and would that be materially different with Take-Two?
10.
You mentioned Zynga’s organic growth struggles. Does that imply low-to-mid-single-digit organic growth for games such as Words with Friends, Empires & Puzzles, Merge Dragons!, Toon Blast and CSR Racing? Is the organic piece contributing much to overall revenue?
11.
For how long might Zynga remain an annuity without declining? At what point do games start to decline once a healthy run rate of USD 500m or so is reached? For how long do you expect the forever franchises to be cash cows to invest in endeavours without having to add to them with an acquisition?
12.
How is the return-on-capital playbook on the inorganic side changing when considering a balance across increasing multiples relative to the historical margin or sales uplifts Zynga has achieved by plugging a studio into its platform? Could return on capital continue to be attractive? Why might you expect a continued path towards acquisition?
13.
Could Take-Two’s historical financial conservatism disrupt Zynga’s ability to pursue acquisition, given increasing multiples for the mobile studies over time?
14.
How important are President Bernard Kim and CEO Frank Gibeau to the Zynga equation? Some C-suite members typically depart when a company is acquired. What’s the lasting bench strength should the two decide to leave Zynga?
15.
What are your thoughts on Take-Two’s CEO Strauss Zelnick, President Karl Slatoff or anyone else on the leadership team, especially around operator quality? What could happen as the two teams integrate?
16.
When we conducted our previous Interview [see Zynga – Post-IDFA Advertising Network Implications & Portfolio Monetisation Runway – 13 May 2021], IDFA [Identifier for Advertisers] was a transitory new change the industry would have to deal with. As we exit Q4 2021, do you think the worst has occurred and we can expect normalisation in 2022?
17.
Comparing how Zynga fared at weathering the IDFA dynamic to a player such as King, it seems King grew through it, citing install base re-engagement, but Zynga perhaps faced greater headwinds. What do you think that is a function of?
18.
Do you think King has better A/B testing, LiveOps or re-engagement techniques vs Zynga? Alternatively, given the company couldn’t use external marketing techniques due to the uncertainties around attribution and targeting, was it able to deal with its own data because its customer overlap is 100% across similar games? Zynga has a very diverse portfolio and any in-house cross-promotion techniques might only touch a much smaller piece of the base.
19.
In our previous Interview, we discussed the Adjust dynamic, where there’s a trust issue in the industry around outsourcing ad services to what would be a competitor. How should we consider Chartboost’s scalability? Is the platform less of a revenue generator for Zynga and more a way to further optimise the company’s marketing costs as a percentage of revenues?
20.
What might success or failure be for the Take-Two-Zynga merger over the next 3-5 years?
