Shares of Zynga (ZNGA) were up 2.5% today after the announcement that the leading social game maker acquired rival OMGPOP. Shares settled at a price of $13.72, which is about 14% off of an all-time high. OMGPOP currently has the most played game with Draw Something. The game is number one on Apple's (AAPL) App Store and Facebook (FB).
Zynga made a similar move in acquiring Words With Friends owner Newtoy in 2010. At that time Words With Friends was one of the most played games. That acquisition was one of Zynga's largest and came at a price of $53. When the final number is released for the OMGPOP deal, it will likely be four times that amount. Zynga will use its large size and scale to likely double the number of players on Draw Something. Before the acquisition, Draw Something has 13.3 million daily users. Thirty five million people have downloaded the game across mobile phones and Facebook over the last six weeks.
The game is played between two people by connecting through Facebook. I happen to play the game on my mobile phone and it is addictive. I draw a picture of a word that is selected based on skill level. The person I am playing tries to guess the word and if he (or she) does, we both get gold 'coins'.. In Zynga's press release, it was stated that every second approximately 30,000 drawings are created on Draw Something around the world. One of the growing trends is users posting pictures of their favorite drawings to Instagram, which is a top downloaded application on the iPhone.
OMGPOP was founded in 2006 as the company iminlikewithyou. Draw Something is the company's most popular game. Here is a list of other games offered from OMGPOP:
- Fleet Fighter
- Hit Machine
- Hover Kart Battle
- Hover Kart Racing
- Missile Command
Draw Something is making money for the company. Not only does the game appear at number one on iTune's free application downloads, it also is number one for top paid applications. Perhaps it is the low price, currently $0.99, or the appealing headline of getting 2,000 more words if you upgrade (which is flashed on my game every other drawing it seems). All Things Digital reports that the game makes $250,000 per day after Apple takes their cut. That is an amazing statistic for a mostly free application.
Back in December, I published an article on the "5 Positives and 5 Negatives in an Investment in Zynga." In that article, which was written shortly before the company went public, I tried to present a balanced bear and bull case for the IPO.
- Users Activity
- Growing Revenue
- Number One Position
- Addictive Easy to Play Games
- Facebook Credits
- Reliance on Facebook
- Minimal Paying Users
- High Valuation
Of the positives, the acquisition one is obviously in the forefront of this article. Some of Zynga's games appeared to have peaked, but it appears they are relying less on Facebook than ever with their own platform and growth across Google's (GOOG) Android phones. Competition will always be present but Zynga remains the leader in social games online and also is a leader in mobile gaming. Unless Angry Birds maker Rovio is taken public or bought by a public company, Zynga will remain the best place to invest in social and mobile gaming. The company got a steal on this deal if the rumored amount of $200 million is true. All Things D is reporting $180 million plus $30 million for employee retention in this article. With Zynga's scale, Draw Something will become the most popular game in the world and with a $0.99 paid version and several add-ons, the game is making money already.
The good news for Zynga shareholders is the stock is up 50% in 2012 and is fast approaching an all time high. Good news for anyone who doesn't own shares of Zynga is the fact that shares appear to be going higher. The acquisition brings the leading social gaming company back into the spotlight. Shares had a nice pop earlier with all the talk of legalized online poker. Many analysts agree that Zynga could monetize their leading Zynga Poker platform if online poker is legalized.
Shares went public back in December at a price of $10 and actually fell in their first day of trading. In my original article I had called for shares to hit $18-$20 in the first day of trading. I also called $15 a great buy in price for the long run. I stand behind $15 and will be looking at buying shares as the future looks ever bright. Look for $15 in the next month and $18 by the end of 2012. Also remember that one deal could bring on an acquisition spree in the mobile and social gaming market. Perhaps a closer look at Gluu Mobile (GLUU) is due.