Zynga Inc Shares Surge, Shrugging Off Brutal Market Sell-Off

Zynga Inc Bullish After Reporting Record Q4 Results

Thanks to strong fourth-quarter results that blew away the company’s own guidance, Zynga Inc’s (NASDAQ:ZNGA) share price has remained bullish, even as the rest of the stock market experiences a sell-off.

As of this writing, Zynga stock is up 14.7% in 2020. That’s a far cry from what the broader market is doing. The S&P 500 has lost 2.4% of its value in 2020, the tech-heavy Nasdaq is down around one percent year-to-date,  and the Dow Jones Industrial Average has tumbled 5.2% this year.

Every major stock exchange in the world is in negative territory on fears that the coronavirus will cobble supply chains and put a massive dent in consumer demand for a wide range of goods and services.

Zynga though, has largely brushed off these concerns; ZNGA stock continues to trend higher after the company announced record fourth-quarter revenue and bookings on February 5.

In addition to announcing earnings and revenues that topped its own guidance, the company’s fourth-quarter bookings grew thanks to a number of recent acquisitions.

Zynga Inc’s outlook for 2020 remains excellent. Wall Street is providing a 12-month price forecast of $9.00 per share. That represents a 29% increase from its current level. Wall Street likes to play it safe though, so a 12-month stock forecast of $10.25 is entirely reasonable. That represents a 48% increase from the current price.

ZNGA Stock Overview

Since being founded in 2007, more than one billion people have played Zynga’s games on the Internet and through mobile apps. Some of its biggest games are FarmVille, Words With Friends, Hit it Rich!, and CSR Racing. (Source: “Overview,” Zynga Corp, last accessed February 26, 2020.)

During the second half of 2020, Zynga expects to launch new games. Puzzle Combat and FarmVille 3 are in test markets and the company’s Harry Potter game is on track to enter a soft launch in the first quarter. (Source: “Q4 2019 Zynga Quarterly Earnings Newsletter,” Zynga Inc., February 5, 2020.)

Zynga is also working on Star Wars games, and its “Gram Games” division is experimenting with shorter, more intense games it describes as “hyper-casual.”

(Source: “Zynga Inc. (ZNGA),” Yahoo! Finance, last accessed February 27, 2020.)

Fourth-Quarter Results Blow Away Expectations

On February 5, Zynga announced that its revenue for the fourth quarter ended December 31, 2019 increased 63% year-over-year to a record $404.0 million. This beat the company’s own guidance by $39.0 million. (Source: Zynga Inc., February 5, 2020, op. cit.)

Zynga also reported its highest bookings ever of $433.0 million, a 62% increase from the same period in the previous year. This beat the company’s guidance by $18.0 million.

The better-than-expected topline results were driven by the company’s games Empires & Puzzles, Merge Magic!, and Words With Friends.

The company reported record online gaming revenue of $325.0 million, an 84% increase from the same prior-year period. User-pay bookings were up 80% year-over-year at $354.0 million, while advertising revenue and bookings came in at a record $80.0 million, a year-over-year increase of 11% and 12%, respectively.

Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was $75.0 million, significantly above the guidance of $25.0 million.

Zynga reported a fourth-quarter net loss of $4.0 million, or $0.00 per share. That’s far better than the company’s own projections of a loss of $45.0 million.

For full-year 2019, revenue increased 46% year-over-year to $1.3 billion while bookings were up 61% at $1.6 billion. Online gaming revenue advanced 56% to $1.0 billion while user-pay bookings were up 76% year-over-year at $1.3 billion. Zynga also reported record advertising and booking revenue of $274.0 million, up 17% year-over-year.

Zynga Inc finished the year with cash and investments of $1.5 billion.

“Our strong Q4 performance capped off an outstanding year for Zynga. Live services are the foundation of our multi-year growth strategy and were the primary driver of our highest-ever annual revenue and bookings,” said CEO Frank Gibeau. (Source: “Zynga Announces Fourth Quarter and Full Year 2019 Financial Results,” Zynga Inc, February 5, 2020.)

Looking ahead, for 2020, Zynga expects to report full-year revenue of $1.6 billion, a 21% increase from 2019. (Source: Zynga Inc., February 5, 2020, op. cit.)

For the first quarter of 2020, Zynga is forecasting that its revenue will climb 45% year-over-year to $385.0 million. Bookings are expected to increase 11% to $400.0 million.

Analyst Take

Zynga Inc’s strong fourth-quarter performance capped off an excellent year as the company delivered its highest annual revenue and bookings.

Judging by its outlook for the 2020 first quarter and full year, Zynga expects to build on this momentum.

Look for Zynga to increase its live services portfolio from five to six “forever franchises” and to launch new video games in the second half of 2020. To accelerate further growth, Zynga is also looking at potential acquisitions.