Zynga buys OMGPOP games company for $200 million: source

Wed Mar 21, 2012 7:36pm EDT

The corporate logo for Zynga is seen on a screen outside the Nasdaq Market Site in New York, December 16, 2011. REUTERS/Brendan McDermid

The corporate logo for Zynga is seen on a screen outside the Nasdaq Market Site in New York, December 16, 2011.

Credit: Reuters/Brendan McDermid

(Reuters) - Zynga Inc is buying OMGPOP, maker of the popular video game "Draw Something" for about $200 million in its biggest acquisition to date as the company moves to expand its lineup of games on mobile devices and Facebook.

A source familiar with the matter told Reuters that Zynga bought the New York-based company for $200 million. The company declined to comment on the deal's financials or say whether it was accretive on a conference call on Wednesday.

Zynga, which raised $1 billion in an initial public offering last December, makes some of the most popular games on tablets and smart phones such as "Words with Friends" and "Scramble with Friends." The $200 million deal is its largest to date and the second-biggest purchase since 2010 when it bought Newtoy Inc, the publisher of "Words With Friends" for $53.3 million.

OMGPOP makes the game "Draw Something" where players make digital sketches of items or pop culture figures such as Lady Gaga and then compete to guess what the drawings are. All 40 employees will join Zynga and the company's headquarters will remain in New York, according to a statement.

Hudson Square analyst Dan Ernst said Zynga could easily afford a deal worth $200 million because, since its IPO, it has a market capitalization of $11 billion and $2 billion of cash on its balance sheet.

But it is always a risk acquiring a company that has only produced one well-known game in recent months, he said.

"The big risk is how long do they last? But it seems like a high quality team though and doesn't feel like a one-hit wonder," Ernst said.

In the six weeks since "Draw Something" has been the market, it has garnered more than 35 million downloads and risen to the top of the app charts on Apple and Android in 84 countries, according to Zynga.

Its popularity on mobile devices could be a boon to Zynga, which investors are watching closely to see if it can diversify outside of Facebook, where it makes 93 percent of its revenue. Zynga said in February that it ended last year with 15 million daily mobile users, a five-fold increase from a year earlier.

Zynga shares closed about 2.5 percent, or 33 cents higher, at $13.72 per share on Wednesday.

(Reporting by Sarah McBride in San Francisco and Liana B. Baker in New York; editing by Andre Grenon)

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Comments (1)
AcapulcoKevin wrote:
There is growing sentiment on Facebook that Zynga is stacking the deck with it’s popular game Zynga Poker to entice players to buy chips. My own experience is that after buying chips you will have a stretch of miracle luck and then will lose until you buy more chips.

This industry is quickly expanding and millions of dollars are being made with the possibility of limitless income with little or no oversight.

I have read the company statements about honesty and high standards and integrity. While that sounds nice, Enron had a similar mission statement.

Zynga has raised Billions in capital since going public but finished it’s 4th quarter balance sheet in 2011 with a 100K profit. This should be a penny stock and is so severely overvalued that anyone holding stock in this company should have their head examined. Now they are buying flash games with no track record for 200 Million? They are blowing money as fast as they can, they should in fact. The company will not last long if there is any type of scandal so why not enjoy the ignorance of investors while they are able?

With ZERO oversight to protect players from being cheated, growing sentiment that they are cheating their players, and the uncertainty of maintaining popularity this is one company to avoid and if you own their stock you should dump it as quickly as possible.

Mar 22, 2012 10:55am EDT  --  Report as abuse
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