Strong Turnaround Bodes Well for ZNGA Stock
Today’s stock represents a great way to gain above-average returns by riding the mobile gaming trend. As the use of mobiles for gaming continues to grow, entertainment companies should be some of the biggest gainers of this rising trend. Investors who jump on this bandwagon early are likely to reap handsome returns.
There are a few gaming stocks that are not only doing well with their portfolios, but are also realizing the fruits of their turnaround efforts.
Case in point being Zynga Inc (NASDAQ:ZNGA), which is a leading provider of social game services. The company offers live social games on mobile platforms like Apple Inc.’s “iOS” and Google’s “Android,” as well as on social networking sites such as “Facebook.”
As an innovator of social games, Zynga has been successful in making “play” a core activity on mobile devices and social networking sites. With a leading portfolio of games like the “Zynga Poker” and “FarmVille” franchises, Zynga has been able to leverage its technology to increase player engagement, launch new games, and build the Zynga brand. This successful execution of its growth strategy has been positive for Zynga stock.
Zynga is showing all signs of a solid turnaround as it makes the transition to the mobile platform. One of the key highlights of its recent quarter has been the company’s increasing mobile momentum. Zynga’s mobile audience has grown of 28% year-over-year, to 19 million average daily active users.
This is the company’s highest-ever year-over-year growth in more than two years. Ninety percent of Zynga’s audience now comes from mobile, as compared to 82% a year ago. In its second quarter, the company posted $209.2 million in revenue, up 15% year-over-year. This growth has been driven by record growth of 30% in mobile revenue and 33% in mobile bookings.
As per a recent research report by Newzoo, the global games market will reach $108.9 billion in 2017 as more than two billion gamers around the globe continue to expand the market. Out of this, mobile is the most lucrative segment, with tablet and smartphone gaming expected to grow about 19% year-over-year to about $46.0 billion, which amounts to 42% of the market. The report further says that, by 2020, mobile gaming will represent more than half of the total games market. (Source: “The Global Games Market Will Reach $108.9 Billion in 2017 with Mobile Taking 42%,” Newzoo, April 20, 2017.)
Zynga is well prepared for this opportunity, now more than ever. In addition to the success it has achieved with its game franchises, the company has been able to achieve operational efficiency. This has led to increased optimism about the business and has pushed Zynga stock higher. There has been a significant improvement in year-over-year profitability, revenue, bookings, and cash flow—as is evident from its recent quarterly results.
Although ZNGA stock has been volatile, this penny stock has gained about 41% year-to-date and, as the company continues to sharpen its operating model, Zynga stock should post further gains.
Chart courtesy of StockCharts.com
In the second half of the year, the social game company’s priority continues to be growing its live services. Zynga has a strong mobile portfolio, which is likely to continue to become stronger. The company has set out a growth strategy of introducing new mobile game titles, and has multiple new games in development.
Analyst Take: Zynga is an impressive turnaround story, and ZNGA stock has a lot of upside potential. For investors who want to gain from the rising mobile trend in the entertainment space, Zynga stock is a strong growth story that should not be missed.