ZNGA Stock: Are the Bears Wrong on Zynga Inc?

ZNGA StockHere’s Why Zynga Stock Is Soaring

When the product a company is known for is no longer popular, the market is likely going to turn bearish. That’s been the situation faced by Zynga Inc (NASDAQ:ZNGA) for quite some time. Known as the “FarmVille” company, Zynga stock has plunged to penny stock levels.

But Zynga is far from over. After a solid first-quarter earnings report, ZNGA stock is up more than 10% on Thursday morning.

The biggest concern for Zynga has been the declining popularity of its social games. In the past, the company relied on its huge presence on Facebook. At one point, almost everyone was playing or knew someone who was playing FarmVille on the social media platform. But as the game lost popularity on Facebook, the stock also lost its appeal to investors.

This time, though, the company announced that Facebook is no longer its main platform. In fact, Apple Inc. (NASDAQ:AAPL) has become Zynga’s largest platform partner, with total online game bookings on “iOS” surpassing those on Facebook. (Source: “Zynga-Q1 2016 Quarterly Earnings Letter,” Zynga Inc, May 4, 2016.)

Speaking of bookings, Zynga has some good news. In the first quarter of 2016, the company’s bookings climbed eight percent year-over-year to $182 million, which was also above the high end of its guidance range.

The main driver behind that growth was mobile, which accounted for 76% of overall bookings. This quarter’s mobile bookings surged an impressive 31% year-over-year and four percent sequentially.

Of course, what investors really care about is whether Zynga can regain its presence in online gaming. And on that front, let’s admit that FarmVille is old news. Even the new mobile installment, “FarmVille: Tropic Escape,” did not impress users.

Fortunately, the company has quite a few other products that are gaining traction.

First up is its Social Slots portfolio, which includes “Hit it Rich! Slots,” “Wizard of Oz Slots,” “Black Diamond Casino Slots,” and “Princess Bride Slots.” Mobile bookings from the segment grew 77% year-over-year and 13% sequentially. Zynga now has four slot games in the top 30 highest-grossing apps in the casino category in the iOS “App Store.”

Then there is “Zynga Poker,” an online poker game that has been running since 2007. Even though the game is considered old in the app world, momentum is still going strong. In the first quarter, Zynga Poker’s mobile bookings increased 13% year-over-year and eight percent sequentially.

And let’s not forget “Words With Friends,” the multi-player digital word game similar to “Scrabble.” The game locked in its strongest first-quarter bookings performance in its six-year history. Mobile bookings surged a whopping 60% year-over-year with users giving it a 4.5-star rating in the iOS App Store.

The Bottom Line on ZNGA Stock

Good products alone are not enough to cheer up Zynga stock investors. Luckily, the company also delivered solid financials. In the first quarter, Zynga generated $187 million in revenue, easily beating Wall Street’s expectations of $162 million. At the bottom line, analysts were expecting an adjusted net loss of $0.01 per share. As it turned out, the company managed to break even.

According to its newly appointed CEO, Frank Gibeau, said, “Zynga has all the ingredients it needs for a successful turnaround.” (Source: Ibid.)

Based on the market’s reaction to ZNGA stock, many investors share Gibeau’s view.