Zynga Inc (NASDAQ:ZNGA) is trading higher than ever this year.
Zynga stock gained back the three percent it lost after an article in the New York Post suggested that the group was unable to sell its costly headquarters in San Francisco at the desired price. Zynga famously paid about $225 million for its Design District office building in 2012.
Zynga’s idea was to sell the building, now believed to be worth more than twice as much as its purchase price, and then lease the facilities. Still, the problem was not so much the selling price, but the fact that the selling price was so good—that is, so high—that Zynga would not be able to lease it back at competitive prices.
A Big Catalyst for Zynga Stock
That said, the real estate assets will come in handy for Zynga stock on August 4, when the company reports its Q2 2016 earnings. Zynga’s cash and real estate value are said to amount to some $1.4 billion, or $1.80 per share. (Source: “Zynga: Potential M&A Speculation And Improving Earnings Momentum To Fuel The Rally,” Seeking Alpha, July 20, 2016.)
The cash and real estate assets will come in very handy if Zynga fails to report satisfying results. They are a kind of earnings insurance. The other is that Zynga may be an acquisition target, especially in view of the intense mergers and acquisitions (M&A) activity in the gaming industry. This began as Activision Blizzard took over King Digital for $5.9 billion last November. (Source: “Investor who’s been right about Nintendo stock predicts what’s next,” Yahoo! Finance, July 20, 2016.) All Activision Blizzard wanted from King Digital was its hugely popular “Candy Crush” mobile game app.
Along that line of logic, Zynga has many assets. Indeed, Zynga is more than just the sum of its real estate and cash assets. Zynga stock has been performing strongly in the past three months as there are indications the company has overcome its problems delivering new content, which had put a dent in revenue.
Sometimes, especially in the game development business, all it takes is one successful product—in Zynga’s case, a game—to change a company’s fortunes and share value. Zynga, after all, has long lived off the back of its “FarmVille” game. Now it has come back with “CSR Racing 2,” a sequel to the popular “CSR Racing” game. Now, it has not reached “Pokémon Go”-sized downloads, but more than 190 million have downloaded it to play on smartphones of all types. (Source: “NaturalMotion’s CSR Racing 2 Now Available Worldwide,” Zynga Inc, June 30, 2016.)
The first iteration of the CSR franchise and its follow-up CSR Classics had as many as 190 million downloads. (Source: “NaturalMotion’s CSR Racing 2 Now Available Worldwide,” Zynga Inc, June 30, 2016.)
The new version of the game allows you to truly “own” the cars you play with on the screen. Fans like the details of the cars, the views of the engines, and the appearance of their interiors. This more than makes up for the fact that the racing is limited to a drag acceleration. The game, as so many other apps, faces the apparently unbeatable (for now) competition from Pokémon Go, but it also appeals to a different crowd.
New CSR Could Make or Break Zynga Stock
The company must have had a good idea that the game was going to be a success to release it just a month before its quarterly earnings. Certainly, CSR Racing has been a critical success, scoring 4.5 stars out of a possible five in the “Google Play” app store.
After all, Zynga knows about blockbuster games. (Just consider all the invitations you likely received on Facebook from friends to play FarmVille.)
The two bullish takeaway points about Zynga are as follows:
- It has a compelling game with CSR Racing 2, which judging by history, will likely break several million downloads. Nobody expects stellar earnings on August 4, but nobody can rule out an earnings surprise either.
- Zynga has become even more of an acquisition target because of CSR Racing and CSR Racing 2. Both add upside to Zynga stock.