Zynga Inc.

ZNGA Details

Zynga Inc. (NASDAQ: ZNGA) is a provider of social game services and is engaged in developing and distributing social games available on mobile devices, social networking sites, PCs, consoles, and other platforms. Zynga Poker, Harry Potter: Puzzles & Spells, and CSR Racing are among the company's popular game franchises. Most of its revenue is derived from in-game virtual products and advertising services.

Latest News:

• Partnership with Ken Block: On November 29, 2021, NaturalMotion, a subsidiary of ZNGA, partnered with Ken Block, a professional rally driver and internet sensation, for its drag racing game CSR Racing 2 (CSR2). Players collect and tune the hottest and latest cars to compete on tracks in the game, which features unrivalled state-of-the-art graphics and high visual fidelity.
• Launch of FarmVille 3: On November 04, 2021, ZNGA launched FarmVille 3, the latest edition of the FarmVille franchise, for download on iOS and Android smartphones and the Mac M1 worldwide. FarmVille franchise title allows players to create their custom farm with appealing characters, adorable animals, and unique gameplay elements.
• Strategic Acquisition: On October 07, 2021, ZNGA acquired StarLark, developer of the mobile golf game, Golf Rival for the total consideration of ~USD 525 million in cash and stock. This acquisition furthers ZNGA's global presence with a studio in China and provides access to a talented development team.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 40.02% increase in total revenue to USD 704.7 million in Q3FY21 (ended September 30, 2021) compared to USD 503.3 million in Q3FY20, attributable to increased revenue from both its Online Game as well as Advertising &Other segments.
• Reduction of Net Losses: Net loss for Q3FY21 decreased 65.88% YoY and stood at USD 41.7 million compared to USD 122.2 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 1.34 billion and total debt of USD 1.33 billion.

Key Risks:

• Customer Concentration Risk: ZNGA derives most of its revenue from a limited number of paying players. Its Mobile MUPs (monthly unique payers) represented only ~3.7% of the average Mobile MUUs (monthly unique users) in Q3FY21. Hence, any failure to retain the existing MUPs or add new ones could adversely impact its operations.

Outlook:

Outlook (Source: Q3FY21 Earnings Presentation, November 08, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZNGA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ZNGA's share price has declined 40.97% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 5.57 to USD 12.32. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.85. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 7.92.

Considering the correction in the stock price in the past six months, recent launches, acquisition of StarLark, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 6.12, up 0.16% as of December 06, 2021, 01:19 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.   

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