[Updated: 5/7/2021] ZNGA Q1 Update
The stock price of Zynga (NASDAQ:ZNGA) has seen a 12% growth year-to-date and we believe that it is likely to continue its rise in the near term, despite the company’s Q1 earnings coming in slightly below expectations. While Zynga’s Q1 revenue of $720 million was ahead of the $690 million revenue forecast per Trefis estimates, its adjusted EPS of $0.08 per share was lower than our forecast of $0.10, and the $0.09 consensus estimate.
Zynga’s revenue growth was driven by higher contribution of live services for games across the board from Merge Dragons, Empires & Puzzles, to Hit It Rich, and Harry Potter: Puzzles & Spells. The strong revenue growth that Zynga has been witnessing over the recent quarters can primarily be attributed to its acquisitions of games from Gram, Peak, Small Giant, and more recently Rollic. This has helped the company’s mobile active users (MAUs) increase to 164 million, up a stellar 139% y-o-y. Investors will likely be happy with the company’s Q1 performance and ZNGA’s stock is up 3% over the last five trading days.
Furthermore, Zynga on May 5, 2021, announced the acquisition of Chartboost for $250 million. What makes this deal interesting is that Chartboost is not a gaming company. Founded in 2011, Chartboost is an advertising platform that reaches more than 700 million monthly users and 90 billion monthly advertising auctions. Zynga’s mobile advertising business is likely to benefit from this acquisition.
Now that the stock has seen a rise of 3% in five trading days, can it continue its upward trajectory, or is a decline in ZNGA stock imminent? Going by historical performance, there is roughly an equal chance of a rise in ZNGA stock over the next month. Out of 685 instances in the last nine years that ZNGA stock saw a five-day rise of 3% or more, 353 of them resulted in ZNGA stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 353 out of 685, or about a 52% chance of gain in ZNGA stock over the coming month. While this historical pattern suggests an equal chance of a rise or decline, we believe that ZNGA stock will continue to rise in the near term, given the strong revenue growth seen in Q1, the Chartboost acquisition, and based on our Zynga’s Valuation of $14, based on our EPS estimate of $0.45 and a P/E multiple of 31x in 2021.
[Updated: 5/4/2021] ZNGA Q1 Earnings Preview
Zynga (NASDAQ: ZNGA) is scheduled to report its Q1 2021 results on Wednesday, May 5. We expect the company to likely post revenue and earnings above the consensus estimates, primarily led by continued growth in the company’s key franchises – Empires & Puzzles and Merge Dragons! Zynga should see an overall pickup in demand due to higher gaming engagement levels seen over the recent quarters. We expect the company to navigate well based on these trends over the latest quarter.
Furthermore, our forecast indicates that Zynga’s valuation is $14 per share, which is 31% above the current market price of around $11. Our interactive dashboard analysis on Zynga Pre-Earnings has additional details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Zynga’s Q1 2021 revenues to be around $690 million, modestly above the $686 million consensus estimate. Despite the economies opening up with vaccination programs underway in multiple countries, the user engagement levels for gaming has remained on the higher side, and Zynga, in particular, has seen higher user engagement led by its recently acquired gaming portfolios, including that of Rollic, which was acquired earlier this year, and it should bolster the overall top-line growth. Zynga’s Q4 2020 total bookings (includes change in deferred revenue along with total revenue) were up a solid 61% y-o-y to $699 million, primarily driven by higher user engagement levels for its top games, including Merge Dragons! Our dashboard on Zynga Revenues offers more details on the company’s segments.
2) EPS likely to be slightly above the consensus estimates
Zynga’s Q1 2021 adjusted earnings per share (EPS) is expected to be $0.10 per Trefis analysis, slightly above the consensus estimate of $0.09. The company’s net loss of $53 million in Q4 2020 compares with a $3.5 million loss in the prior year quarter. However, on an adjusted basis, the company reported earnings of $85 million or $0.09 on a per share basis. For the full year 2021, we expect the adjusted EPS to be higher at $0.40 compared to $0.35 in 2020.
(3) Stock price estimate 31% above the current market price
Going by our Zynga’s Valuation, with an EPS estimate of $0.40 and a P/E multiple of 35x in 2021, this translates into a price of $14, which is 31% above the current market price of around $11. In fact, at the current market price of $11, ZNGA stock is trading at just 27x its 2021 EPS estimate of $0.40. While the 27x figure is comparable with some of its peers including Activision Blizzard and Electronic Arts, we believe that Zynga deserves a higher P/E multiple given the strong revenue and earnings growth delivered over the recent past, a trend expected to continue going forward, as well.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.