Zynga Inc: Volatility Creates Great Opportunity to Invest in This Gaming Stock

Zynga Inc: Volatility Creates Great Opportunity to Invest in This Gaming StockZynga Stock’s Outlook Is Bullish

Zynga Inc (NASDAQ:ZNGA) is an excellent example of a great stock being kicked to the curb during the March 2020 sell-off. It also highlights something fascinating about the stock market. It’s the only place where, when something amazing goes on sale, investors run for the exits.

The ongoing volatility has created a great window of opportunity for ZNGA stock.

Zynga stock entered 2021 with great momentum, having advanced approximately 60%. In a year when a rising tide lifted all boats, the increase in ZNGA stock was merited. In 2020, the company launched a number of new products, reported strong financial results, and raised its full-year guidance.

You can’t ask for much more than that. And investors have responded in kind. Over the first six weeks of 2021, Zynga stock rallied by an additional 25%, hitting a new record high of $12.32 on February 19.

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Since then, rising bond yields have taken a dent out of the tech-heavy Nasdaq and other growth stocks. At the time of this writing, the Nasdaq is down more than 10% from its recent high, a move that’s usually used to define a stock market correction. On March 4, the Nasdaq was down 11.4%, at 12,553.96, after hitting a February 16 peak of 14,175.11.

While many investors are running for the exits, it presents a unique opportunity for savvy investors to take advantage of a larger bullish trend.

ZNGA Stock Overview

Zynga Inc develops, markets, and operates video games as live services on mobile platforms such as “iOS,” “Android,” and social networking sites.

Zynga generates revenue through mobile game downloads, in-game sales of virtual goods, and advertising services. The company’s revenue is divided between “Online Game” and “Advertising and Other.” The vast majority of its revenue comes from Online Game accounts.

Since Zynga was founded in 2007, more than a billion people have played the company’s games. Its games include CSR RacingFarmVilleGame of Thrones Slots CasinoHarry Potter: Puzzles & SpellsWonka’s World of Candy, and Words With Friends. (Source: “Investor Relations,” Zynga Inc, last accessed March 4, 2021.)

Acquisition of Echtra Games

On March 3, Zynga Inc announced that it had acquired Echtra Games, Inc., a cross-platform video game studio with a development team whose core members helped create some of the world’s most popular action role-playing games, including the Diablo and Torchlight franchises.

Frank Gibeau, Zynga’s CEO, commented, “This acquisition will be instrumental in growing our iconic licenses and brands from mobile to PCs and consoles, while helping to further expand Zynga’s total addressable market.” (Source: “Zynga Acquires Echtra Games Team Led by Developers of Diablo and Torchlight Franchises,” Zynga Inc, March 3, 2021.)

Strong Fourth-Quarter Results

For the 2020 fourth quarter, Zynga announced its highest revenue and bookings in the company’s history, with revenue up 52% year-over-year, at $616.0 million, and bookings up 61% year-over-year, at $699.0 million. (Source: “Q4 2020 Letter to Shareholders,” Zynga Inc, February 10, 2021.)

The company reported record online game (or user-pay) revenue of $499.0 million, up 54% year-over-year. Its user-pay bookings were up 64% year-over-year, at $582.0 million. Its advertising revenue and bookings were up 47% year-over-year, at $117.0 million, an all-time record-high.

The company also generated record quarterly operating cash flow of $206.0 million, up 119% on an annual basis.

Zynga Inc reported a fourth-quarter net loss of $53.0 million, which was $39.0 million better than the guidance. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $90.0 million, significantly above the guidance of $35.0 million.

“In an unprecedented year, our talented and resilient teams finished Q4 strong, delivering our highest quarterly revenue and bookings in Zynga’s history,” said Frank Gibeau, CEO. (Source: “Zynga Announces Fourth Quarter and Full Year 2020 Financial Results,” Zynga Inc, February 10, 2021.)

“Our execution throughout 2020 added meaningful scale to our live services platform and strengthened our position as one of the leading mobile game publishers in the world.”

Analyst Take

The fourth quarter topped off a transformational year for Zynga Inc. During the quarter, the company reported its highest quarterly revenue and bookings. This left the company well ahead of its guidance across all key financial measures.

Zynga is more than a one-hit wonder that has benefitted from bored people stuck at home because of COVID-19. The company’s future growth drivers include its recurring revenue from live services, its launch of new video games, its investments in new growth opportunities, and the surging popularity of hyper-casual games.

All this positions Zynga stock for growth in 2021 and beyond.