Zynga Stock: Here’s Why Zynga Inc Could Soar in 2016

 Zynga StockZynga Stock Could Have Huge Upside

Zynga Inc (NASDAQ:ZNGA) has performed better than anyone could have expected a mere month ago. BMO Capital Markets has reiterated a “market performance” rating as Zynga stock trounced overly pessimistic expectations.

In the first quarter, Zynga, one of the top gaming companies, reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $13.8 million compared to a consensus of $8.4 million. Most significant for Zynga stock, the company expects growth to continue over the next quarters. The price target for Zynga stock has increased from $4.00 to $4.50.

Zynga’s games include FarmVille, Mafia Wars, and CityVille, all of which have long been popular on Facebook, but suffered from growing competition. Dwindling user numbers prevented Zynga from launching new games over the past few years. In a vicious circle of events, fewer players translated to fewer funds, meaning fewer new games. Now, three developments are adding bullish fuel to Zynga stock:

  1. The arrival of Frank Gibeau, the new CEO, also cheered up investors. Gibeau has served on Zynga’s board since last August and had spent more than 20 years at Electronic Arts Inc. (NASDAQ:EA). Gibeau’s appointment sent Zynga stock surging five percent in afterhours trading. Analysts expect Gibeau to target more specific gaming genres, while also cutting costs. (Source: “Zynga shares spike after company names new CEO,” Phys.org, March 2, 2016.)
  2. Zynga, mostly known for FarmVille and its less popular FarmVille 2 Country Escape successor, has developed new games that have already produced favorable results. Among them, Slots, Words With Friends, and Poker formed Zynga’s core live mobile franchises. Their bookings grew 63% in 2015. (Source: “Zynga Announces Fourth Quarter and 2015 Financial Results,” Zynga Inc., February 10, 2016.)
    Zynga conceded that it needed to add new releases to regain market share. Indeed, the company will launch 10 new games in 2016. Moreover, it will stick with what works: among the 10 games, four will fall into the “social casino” category. A lack of funds explains the scarcity of releases, which brings us to the main bullish point…
  3. Zynga will simply move to a humbler main office, as it is selling the current one for a price that could exceed $530 million. Exploiting San Francisco real estate is the smartest thing for Zynga to do. Since the FarmVille creators first moved to the building on Townsend Street in 2012, property prices have almost tripled in San Francisco.

Zynga can now move ahead with developing the next “FarmVille”—something big to rebuild investors’ confidence in ZNGA stock.

Zynga has two potential hits: CSR2 and Dawn of Titans are two blockbusters out of 10 games Zynga expects to deliver in 2016. These have seen delays due to their bigger budgets and employee numbers; however, if players like them, they could generate significant revenue. (Source: “What Will It Take To Turn Zynga Around?Fortune, February 11, 2016.)

Zynga now has a plan to raise the funds it needs to develop new games. ZNGA stock could regain a prominent role in the gaming industry.