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> How big are FB video games today? Zynga was purchased for $12.7B when Take-Two's market cap was ~$20B without really impacting Take-Two's market cap meaning t

by vkou 4y ago

> How big are FB video games today? Zynga was purchased for $12.7B when Take-Two's market cap was ~$20B without really impacting Take-Two's market cap meaning that Take-Two purchased a company for $12.7B that the market valued at ~$0 (generously if we assume the following peak of $28B was the acquisition, then the market valued it at ~4B). I'm not sure that's correct. If a company worth $10B pays $1B in cash to purchase a gold bar that's worth $1B, it's market cap should not change. That doesn't mean that the gold bar is worthless! Likewise, if a company worth $10B pays $1B in cash to purchase a company that's worth $1B... It's market cap should not change, either! The only situation in which the market cap should change is if the purchase unlocks some kind of new synergy between the two companies, that wasn't present when they were separate entities (Or if the shareholders think that the management of the buying company has gone insane.) But that still has zero bearing on the 'market value' of the acquired company.

vlovich123 4y ago
Market cap incorporates valuation of future cash flows. So buying $1B worth of gold should result in a decrease of market cap because the market will typically discount the future value of doing that (ie you should be able to find better growth opportunities). Same goes for mergers - a merger is supposed to get you synergies that grow you more than you’d be able to accomplish by yourself.
- vkou 4y ago
  > So buying $1B worth of gold should result in a decrease of market cap because the market will typically discount the future value of doing that (ie you should be able to find better growth opportunities). They bought the $1B worth of gold using $1B worth of cash. It's true that gold doesn't have future cash flows, but neither does a pile of cash. > Same goes for mergers - a merger is supposed to get you synergies that grow you more than you’d be able to accomplish by yourself. A merger not resulting in a stock bump means that the market doesn't think it's a smart merger. My point was that it doesn't mean that the market thinks that whatever you bought was worthless. If a company spent $1B on a worthless thing (By making a big pile of money, and setting it on fire), you'd expect its market cap to drop.

by vkou 4y ago

vlovich123 4y ago

Market cap incorporates valuation of future cash flows. So buying $1B worth of gold should result in a decrease of market cap because the market will typically discount the future value of doing that (ie you should be able to find better growth opportunities). Same goes for mergers - a merger is supposed to get you synergies that grow you more than you’d be able to accomplish by yourself.

vkou 4y ago
> So buying $1B worth of gold should result in a decrease of market cap because the market will typically discount the future value of doing that (ie you should be able to find better growth opportunities). They bought the $1B worth of gold using $1B worth of cash. It's true that gold doesn't have future cash flows, but neither does a pile of cash. > Same goes for mergers - a merger is supposed to get you synergies that grow you more than you’d be able to accomplish by yourself. A merger not resulting in a stock bump means that the market doesn't think it's a smart merger. My point was that it doesn't mean that the market thinks that whatever you bought was worthless. If a company spent $1B on a worthless thing (By making a big pile of money, and setting it on fire), you'd expect its market cap to drop.