Zynga (ZNGA) Changes the Game

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Two weeks ago I made the case for going long ZNGA. This view was contingent on a few things happening: ZNGA coming out with a hit title or announcing layoffs to streamline their cost structure. Surprisingly, the company’s announcement 4 trading days ago accomplished both in one fell swoop. While I was admittedly shocked the company choose to make a large acquisition given their disastrous M&A history (the NaturalMotion deal was $527MM; nearly $400MM of which was paid in cash), after a bit of digging I experienced a 180 degree shift in my opinion. There are a few reasons I think this acquisition is a game changer for the company:

  1. Torsten Reil is a freak of a brain and is on the cutting edge of mobile graphics development. He is also dogmatic in his approach: it’s about getting the game right and making it delightful for players. These two things will serve Zynga well now and into the future.
  2. NaturalMotion has a fantastic portfolio of mobile games – both new ones and sequels of their current hits. Investors who shorted ZNGA because of their user attrition will have to completely re-evaluate their thesis.
  3. NaturalMotion has proprietary, differentiated and valuable IP. And now so too does Zynga.
  4. One final thought from a VC that backed Torsten / NaturalMotion: “Combined with Zynga’s reach, social networking expertise, and advanced audience measurement tools, NaturalMotion and Zynga should be a very potent combination.”

Over the next few years, I believe NaturalMotion will take Zynga into truly rarefied air: Zynga is set to become a mobile gaming powerhouse.


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