What Factors Led To A 50% Rise In Zynga’s Stock Price Since Early 2018?

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Zynga’s (NASDAQ:ZNGA)  stock price has risen by around 50% since the beginning of 2018. This can be attributed to a change in revenues, net income margin, and valuation multiple. In this note we discuss these three factors that impacted the share price. You can look at our interactive dashboard analysis ~ What Led To A 50% Rise In Zynga’s Stock Price Since 2018? ~ for more details. In addition, you can see more of our Information Technology data here.

Zynga’s Stock Price Has Risen From Around $4 In January 2018 To Around $6 Currently

 

  • Zynga’s stock price has risen from $4 in January 2018 to around $6 currently.
  • This can be attributed to higher revenues and expansion of the earnings multiple.
  • We discuss these factors below.
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The Change In Share Price Can Be Attributed To Revenues, Net Income, And Earnings Multiple Growth

Revenues Grew From $861 Million In 2017 To $907 Million In 2018, And They Are Expected To Be $1.24 Billion In 2019, Partly Aided By The New Game Launches And The Impact of Acquisitions 

  • Online Gaming revenues grew from $666 million in 2017 to $671 million in 2018.
  • They are expected to grow to $920 million in 2019.
  • This can be attributed to strong growth in the company’s recently acquired portfolios, which includes games such as Merge Dragons, and Empires & Puzzles.

Zynga’s Adjusted Net Income Margin Increased Sharply From 13% In 2017 To 23% in 2018, While It Can Decline Slightly To 21% In 2019

  • Zynga’s net income margin grew sharply from 13.1% in 2017 to 23.2% in 2018, and it is expected to be 21.1% in 2019. This can be attributed to expected growth in cost of goods sold, selling & marketing, and R&D as a percentage of revenue, as the company focuses on development and marketing of new games.
  • COGS as a percentage of revenues increased from 30.1% in 2017 to 33.6% in 2018, and it could further increase to 36.0% in 2019, based on the trends seen in the first half of the year. R&D as a percentage of revenue remained around 29.8% in 2017 and 2018, but it is expected to grow to 33.8% in 2019, as the company invests in development of new games. Note that Zynga’s pipeline includes games from popular franchises including Game of Thrones and Star Wars.
  • Selling & Marketing as a percentage of revenue grew slightly from 24.6% in 2017 to 25.0% in 2018, and we forecast it to grow further to 27.5% in 2019, in line with the trends seen in H1 2019.  General & administrative expenses as a percentage of revenue has declined from 12.6% in 2017 to 10.9% in 2018, and we forecast it to fall to 7.0% in 2019, reflecting the trends seen in H1 2019.
  • Interest & other income/expense as a percentage of revenue declined from -1.4% in 2017 to -2.1% in 2018, and it is expected to grow to -1.5% in 2019.  Effective tax rate grew sharply from 29.7% in 2017 to 41.6% in 2018. However, it could decline to 24.4% in 2019.
  • Non-GAAP and other adjustments as a percentage of revenue have declined from -10.0% in 2017 to -21.5% in 2018. We expect the figure to decline further to -23.3% in 2019, primarily led by the impact of deferred revenues on net bookings.

Zynga’s Price To Earnings Multiple, Based On Expected 2019 Earnings, Is In Line With That of Activision Blizzard, But Lower Than That of Electronic Arts

  • Zynga’s Price To Earnings Multiple ~ 26.7x
  • Electronic Arts’ Price To Earnings Multiple ~ 30.1x
  • Activision Blizzard’s Price To Earnings Multiple ~ 22.0x

Note that the expected earnings for 2019 are based on average consensus taken from Yahoo Finance.

 

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