Zynga Inc.

ZNGA Detail

Zynga Inc. (NASDAQ: ZNGA) is a major interactive entertainment firm with a diversified portfolio of popular game franchises such as Zynga Poker, Harry Potter: Puzzles & Spells, and CSR Racing. Its games have been downloaded over four billion times on mobile phones, facilitated by its global reach in 175 countries and regions.

Rollic's Downloads Cross 1 Billion: On August 05, 2021, ZNGA's subsidiary, Rollic, crossed 1 billion downloads across its portfolio of hyper-casual games. Rollic is amongst the world's largest hyper-casual publishers, having previously created various universally fun games that were popular in pop culture and on social media networks like TikTok.

Inorganic Growth Initiatives: Also announced on August 05, 2021, ZNGA signed an agreement with Betta Games to acquire China-based StarLark, which developed Golf Rival, the world's second-largest mobile golf game, in a cash and stock transaction of USD 525 million. The acquisition expands ZNGA's global presence and adds various additional projects in early development. The news follows the closing of the acquisition of Chartboost, Inc., a mobile advertising and monetization platform (originally announced on May 05, 2021), for USD 250.4 million in cash. The Chartboost acquisition enables ZNGA to optimize programmatic advertising and yields at a big scale.

Q2FY21 Results: The company reported a surge of 59.40% in total revenue to USD 720.0 million in Q2FY21 (ended June 30, 2021) compared to USD 451.7 million in Q2FY20, owing to a 51.21% YoY improvement in its Online game segment, which represented 81.53% of the total revenue in Q2FY21, and a 109.45% YoY growth in the Advertising & Other segment. Net income for Q2FY21 was USD 27.8 million compared to a net loss of USD 150.3 million in Q2FY20. As of June 30, 2021, ZNGA had cash & cash equivalents (including short-term investments) of USD 1.50 billion with a total debt of 1.32 billion.

Total Revenue & Bookings (in millions) (Source: Q2FY21 Earnings Presentation, August 05, 2021)

Key Risks: The company operates in the highly competitive mobile gaming industry, which is susceptible to rapid changes. If its peers create content and products that the customers prefer, it could hurt ZNGA's brand and financial status. In addition, there is only a tiny portion of paying users out of the total users who play the company's games. Its Mobile MUPs (monthly unique payers) represented only ~3.4% of the average Mobile MUUs (monthly unique users) in FY20. The company's business may be affected if it fails to retain these MUPs or attract new ones steadily.

Outlook:

Outlook (Source: Q2FY21 Earnings Presentation, August 05, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZNGA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ZNGA stock price has decreased by 27.30% and 25.19% in the past three and six months, respectively, and is currently leaning towards the lower-band of the 52-week range of USD 7.77 to USD 12.32. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 14.90. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 10.81. Considering the correction in the stock price, recent acquisitions, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 7.99, down 18.22% as of August 06, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

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