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Stocks: Zynga pops on Take-Two Interactive deal, Lululemon falls, Crocs down on sales jump

Yahoo Finance's Julie Hyman and Brian Sozzi discuss the rising share price of Zynga following the announcement that the Farmville creator will be acquired by Take-Two Interactive, retail and video game stock moves ahead of the open, Lululemon shares tumbling, and Crocs stock falling despite a 42% jump in sales.

Video Transcript

JULIE HYMAN: There you have the opening bell here and we've got a NASDAQ futures in particular that have been pointing to a really negative open. As we mentioned at the top of the show, the S&P 500 was down 1.9% last week. The NASDAQ fell sharply as well and had its worst week going back to February. All of this recall, had to do with the FOMC minutes that were released midweek that basically reminded investors, I suppose, that we are going to see rate increases this year.

But also raised the idea that not only is the fed going to stop adding new assets to its balance sheet, it could even potentially start to shrink the existing balance sheet. All of that tightening really making folks in the markets nervous. We saw bond yields rise. We saw stocks fall. We saw Bitcoin fall as it continues to do.

And there's this basically this risk off tenor that we are now seeing in the markets. Although, Jared, pointing out here that not everything is down. So Jared, in the early going, Jared, stands out?

JARED BLIKRE: That's right. XLF thE financial sector of the S&P 500 just hit a record high. And I have a number of financials-- I put this board together yesterday to show a bunch of financial stocks at record highs including Berkshire Hathaway. And I still have it up. Not all of these had hit record highs this morning, but Berkshire Hathaway has.

And we don't talk about this stock a lot. We go to my NASDAQ 100 heatmap to talk about the mega caps. But this is a stock in the S&P, excuse me, on the New York Stock Exchange that has just been flying high recently since hitting those December lows. So, it's not only banks, it's also financial companies like insurance companies. And right on the heels of earnings season, we're going to be kicking that off with JP Morgan next week.

But let's take a look at the broader market right now. This is a NASDAQ 100. We're seeing a lot of negative price action for the new year. You can see Tesla down another 3%. ASML, that's down 5%. Seeing some weakness in the chip stocks. Costco down 3% as well. And Nvidia down over 3 and 1/2%.

So let's take a look at the sector action. Only financials and energy are in the green right now. That is a theme that we have been talking about since the beginning of the year. What is accelerating to the downside here? We have consumer discretionary, tech, and communication services, all three of those off more than 1%.

I'd like to get a look at the travel heat map after a weekend. And we can see Airbnb in the upper left. That is a standout. That stock is down 4 and 1/2%. You can see over the last six months, kind of trading mostly sideways but up about 5%, 6% there.

I want to take a look at Chinese stocks as well. Because we saw these pick up late last week seeing a little bit of continuation today in some of these names, jd.com up 2 and 1/2%. Alibaba, by the way, was up 10%, last week kind of bucking the trend of, well, everything else. And also want to take a look at the Ark Innovation components. These have gotten absolutely smoked this year.

In fact, taking a look at a year to date basis, you can see Shopify down 20%, the new square or block that's down 15%. Coinbase, down 13%. So really continuing these moves to the downside today. I will show two green screens here.

We got banks. Those are wildly in the green this year. You take a look at the year to date look. We can see Wells Fargo up 16%, Truist up 12%. And it's a similar picture for the energy market. We got Exxon up 12%, Chevron up 6%, for the year, guys.

JULIE HYMAN: Yeah, well most outlooks are that rates are going up and energy prices could continue to go up, which is bullish for both of those groups. One note on the travel stocks. You mentioned Airbnb. It got downgraded by Piper Sandler this morning. So that definitely not helping matters.

Thank you so much, Jared. Appreciate it. Got to talk about some other individual movers as well. Because we had a big surprising deal in the video game business this morning. Take-Two Interactive is going to be buying Zynga, Sozz. cash and stock, enterprise value, $12.7 billion. The value of those Zynga shares, $9.86 a share, 64% higher than Zynga's close on Friday. So those Take-Two shareholders not loving that premium this morning.

BRIAN SOZZI: No. This is an interesting deal. You know, I put it out real quick on Twitter this morning. If Zynga is valued at a 64% premium as it is, you have to think Roblox which its stock has been under pressure, a good deal is worth a heck of a lot more than it's being reflected in current markets.

But again, just something to think about moving forward. But on this deal specific, you know, I was on the earnings call, analyst and media call this morning, with Strauss Zelnick and the CEO of Zynga, Frank Gibeau and they're making the case that this deal will help Take-Two expand more into mobile games. Their contention is that games like Grand Theft Auto, which is their top selling game has lots of opportunity. They're not being exploited right now on the mobile game space.

They're suggesting that Zynga will help them make those mobile games. After this deal closes Take-Two viable combined 8,000 game developers. That's a great position to be in here as Take-Two tries to make these mobile games. Also too, they were talking a lot about expansion into emerging markets. Strauss Zelnick, the CEO of Take-Two, saying this will help Take-Two expand into the likes of Asia and Africa, the Middle East as well, with a free to play a gaming model.

And then last but not least, Take-Two giving a lot of credit to Zynga's forever franchises. Like I can't tell you how many times I've played Words With Friends. That title is unlikely to be going anywhere anytime soon. Theoretically, it could be a game on the internet for the next-- for decades to come. So Take-Two trying to get in on that too as well.

And then lastly, Julie, you know Mark Pincus, the founder of Zynga, is still on the board at the company. And we have seen from him over the past year, he's been investing alongside LinkedIn founder, Reid Hoffman. You know, he owns 5% of Zynga. And he's currently chairman.

You know I think for him, this might be a sign of him just wanting to explore other interests in his life, get off that Zynga board, start to invest in other companies like we've seen him start to do last year.

JULIE HYMAN: Yeah, interesting stuff. And we were just showing the board of how some of the other video game makers are trading. Interestingly, Roblox is trading down fairly sharply, not necessarily what you would expect in the wake of this deal. And we're also showing up there Electronic Arts, which is down a bit and Activision. And I know you were telling me about on the call, that Zelnick was touting the culture of Take-Two Interactive, perhaps trying to draw a contrast with Activision, which has, to say the least, common under a lot of fire for its culture there. And the CEO Bobby Kotick had come under a lot of criticism as well.

BRIAN SOZZI: No, that was not lost on me, Julie. Strauss Zelnick is a very detail oriented executive. He knows what he's saying. He knows why he's saying it. And that was at the top of the media call too, really highlighting the culture of these combined companies, saying that it's one of mutual respect. So I think taking a strong jab over the shenanigans at Activision Blizzard.

JULIE HYMAN: So just like this deal is perhaps a precursor of things to come in the deal space in 2022, so is our other big mover this morning perhaps a sign of things to come, at least in the short term because of Omicron. I'm talking about Lululemon, which came out this morning and said fiscal fourth quarter sales are going to be the bottom of its previously announced range. Earnings also going to be at the lower end of its range.

And the CEO there, Calvin McDonald, citing the consequences of Omicron. He's saying there are increased capacity constraints, more limited staff availability, reduced operating hours in certain locations. Lululemon, by the way, is down about 26%. Going into today, before today, down 26% from its record high on November 16 Sozz.

BRIAN SOZZI: This might be our first disagreement of the year, Julie. I know you have been you're making a very good point that a large part of Lululemon's business is online. And our very own Brad Smith giving us that stat. I believe was over 40% of their business is tied to online. I still think in-store shopping is very important.

And then it's also very important for Lululemon, especially when you're selling items in many cases that are priced over $120 a pop. You still want to try these things on. You still want to see these items. And then over time perhaps you're shopping online at the likes of Lululemon.

I think retail quarters end in January. I think Lululemon was hit by weak traffic post holiday season. We also heard that from Bath & Body Works last week as well here. Gets you thinking if there might be some more warnings from retail in the coming days.

JULIE HYMAN: Maybe, but then on the flip side, you got another retailer this morning that is telling a very different story. And so that also to me raises questions about Lululemon. To me, Lululemon customers are repeat customers. You're not getting a lot of new people walking into Lululemon. It's people who are buying in a certain income bracket who are buying that stuff over and over again.

On the flip side, you got Crocs this morning, and that company is coming out and saying 2021 revenues rose by 67% year over year. That's better than estimated. The stock's trading down though, which is kind of interesting here. The company is talking about for this year, revenue is going to be up 20% excluding Hey Dude, which is a brand it announced it was buying late in the year.

Gross margin also going to be hit by airfreight. Maybe that's part of it. I don't know what's going on with the stock here this morning, Sozz.

BRIAN SOZZI: I think here's why Crocs shares are down. The headline. For you guys looking for this year, Crocs looking for 20% sales growth. Last year sales, I believe were up 67%, so seeing a slowdown in sales growth for a company. It really is valued price perfection in a world that is definitely not perfect.

JULIE HYMAN: Yeah, definitely not.