Playing the big game: Zynga has bumper trading day due to $13 billion offer from T2

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It was entertainment stocks that got the juices flowing last January when the eagle-eyed Reddit board groups began to take control of their own destiny by creating the now infamous meme stock craze.

Now here we are, a year on, and it's the entertainment stocks that are back in the limelight, but this time not due to a social media-fueled frenzy, rather more to do with corporate mergers and acquisitions within two of the most popular computer game manufacturers in the world.

Zynga, which is a very famous name due to its creation of Farmville, yesterday came to light as the subject of a potential acquisition by rival gaming company Take-Two.

Both are publicly listed giants, and Zynga, listed on the tech-friendly NASDAQ exchange, has become one of the US stock market's top movers for the entire week.

Game publisher Take-Two Interactive, which was founded in 1993 in New York, is listed on the London Stock Exchange and has some world-famous titles to its name including the globally popular but controversial Grand Theft Auto series and sport related games such as the professional golfing PGA Tour 2K series, has offered to buy Zynga for a lofty $13 billion.

The result of this has been not only sensationalist news articles in the gaming press, but a massive and sudden rise in the price of Zynga stock during yesterday's US trading session in New York.

Zynga stock shot up in price suddenly by a vast 29% as the market opened on the first trading day of the week, which is a very large move for a well-capitalized company that has been listed on the public exchange for ten years already.

Zynga is a well-established and highly profitable enterprise, having over 134 million users worldwide, and a 2020 revenue of $1.97 billion.

However, the vast offer of $13 billion is much higher than the usual metrics used to value companies when a merger or acquisition takes place.

Ordinarily, the parameters for valuing a company would be based on simply multiplying its P/E ratio by its post-tax profits for the year. In this case, the valuation is several times higher than what would be expected using a standard method of valuing a company, which has become a common trait in tech acquisitions and e-commerce business mergers during recent years.

This demonstrates that confidence by rival firms in purchasing other businesses in their own sector is massive, and that internet-based businesses or interactive tech and game publishers are among the most valuable when it comes to acquisitions and valuations.

During the course of yesterday, the share price of Zynga stayed level at $8.44 per share, however the rise of 29% over the past five days accelerated when looking at the increase of value in Zynga stock during the course of yesterday alone, and it was a massive 40%. It is now at a one-month high, which is certainly something to look at during the trading week ahead.

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