Despite the highly anticipated release of Grand Theft Auto VI generating excitement, Take-Two Interactive Software Inc. (NASDAQ:TTWO) faces challenges related to its $12 billion investment in Zynga—a move into the mobile-gaming sector that coincided with a decline in the industry.
With a limited presence in the rapidly growing segment of smartphone games, Take-Two’s acquisition of Zynga, known for titles like FarmVille and Words With Friends, marked the largest deal in video game history. However, the mobile games market experienced a downturn just as the deal was sealed. The lifting of COVID-19 restrictions redirected consumer interest away from casual games, and Apple’s new privacy features made it difficult for Zynga to attract new players.
Sales from Zynga’s top five games have declined by 23% since the spring of 2022, mirroring the broader slump in the $90.4 billion mobile games market, which is expected to ease starting next year. Take-Two, despite being known for other successful titles, has faced challenges as it entered the mobile gaming industry, with Zynga’s revenue projections for this fiscal year down about 5% from 2021.
Zynga’s limited pipeline further dampens prospects, with only two new releases scheduled for the next 12 months, according to Take-Two’s latest earnings report. This includes a delayed Star Wars smartphone game. Despite the challenges, Take-Two aims to become the largest mobile gaming company globally based on market share, citing investments in new intellectual property and a growing mobile ad business.
Take-Two’s acquisition of Zynga was a strategic move to prepare for the anticipated dominance of mobile gaming. However, the decline in mobile gaming revenue, a 7% industrywide drop in 2022, and another expected 2% dip in 2023 have posed obstacles. Take-Two’s lowered projections for Zynga this year indicate the company’s awareness of the challenges in the mobile gaming sector.
Despite Zynga’s struggles, Take-Two’s focus on Grand Theft Auto VI has overshadowed concerns, leading to a 52% increase in Take-Two shares this year. The company’s CEO, Strauss Zelnick, plans to adapt its popular franchises to mobile, potentially including a smartphone version of Grand Theft Auto VI. The success of Grand Theft Auto VI has helped mitigate concerns about Zynga and the broader challenges in the mobile gaming market.
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