Are you considering buying Zynga stock but unsure if it is a good buy? Or maybe you are concerned it doesn’t fit into your portfolio’s investment goal. Well, look no further because in this post is a detailed analysis of Zynga that will answer your question(s) so you can decide whether to buy or pass on this tech stock.
Zynga Inc. (“ZNGA”) is an American social game developer running social video game services and founded in April 2007 with headquarters in San Francisco, California. The company primarily focuses on mobile and social networking platforms. Zynga states its mission as “connecting the world through games.” Zynga launched its best-known game, FarmVille, on Facebook in June 2009, reaching 10 million daily active users within six weeks. As of August 2017, Zynga had 30 million monthly active users. In 2017, its most successful games were Zynga Poker and Words with Friends 2, with about 57 million games being played at any given moment; and CSR Racing 2, the most popular racing game on mobile devices. Zynga began trading on NASDAQ December 16, 2011, under the ticker ZNGA. In June 2020, Zynga announced that it will buy Turkish developer Peak for $1.8 billion in its biggest ever acquisition. As of February 2021, Zynga is currently working on a free game for mobile devices and Nintendo Switch titled Star Wars: Hunters.
Moat of Brand
I believe Zynga has a narrow moat right now, but is primed and ready to increase its moat through becoming a gaming industry name brand by providing cross platform games – with known titles such as Harry Potter & Star Wars. As of the end of December 2020, Zynga had around $800 million in cash on hand, according to the company’s fiscal fourth-quarter earnings report while only having an outstanding $590 million – establishing Zynga’s positive cash balance as approximately $210 million. Zynga is in a great position to capitalize on establishing itself as a top cross platform gaming developer, which will only lead to greater profits – quite possibly sooner than later.
Mark Pincus is founder and Chairman of the Board of Zynga. He has served as our Chairman from April 2007 to March 2016, as Executive Chairman from March 2016 to May 2018, and as Chairman since May 2018. He previously served as Chief Executive Officer from April 2007 to July 2013 and from April 2015 to March 2016, and as Chief Product Officer from April 2007 to April 2014. In 2014, he founded superlabs, a San Francisco-based product lab focused on developing products that connect and empower people, which was acquired by Zynga in 2015. Mr. Pincus also founded Zynga.org in 2009, a non-profit organization dedicated to using social games for social good. From 2003 to 2007, Mr. Pincus served as Chief Executive Officer and Chairman of Tribe.net, a company he launched and one of the first social networks in the industry. From 1997 to 2000, he served as Chairman of Support.com, Inc. (NASDAQ: SPRT), a help desk automation software company he founded, and he served as Chief Executive Officer and President from December 1997 to July 1999. From 1996 to 1997, he served as Chief Executive Officer of FreeLoader, Inc., a web-based news company he founded.
Frank Gibeau is the Chief Executive Officer of Zynga. He joined Zynga as CEO in March 2016, and has been a member of the Zynga Board of Directors since August 2015. Gibeau is a mobile, PC and console gaming industry expert with 25 years of experience in interactive entertainment.As Zynga’s CEO, Gibeau led the company’s turnaround and transition to rapid growth. Zynga’s market cap during Gibeau’s tenure as CEO has nearly tripled, in large part, due to optimizing live services and fortifying the company’s portfolio of wildly popular franchises, including CSR Racing, Words With Friends, and Zynga Poker. Under Gibeau’s leadership, Zynga has acquired a pipeline of games including global hits Empires & Puzzles and Merge Dragons!, as well as secured game development partnerships with some of the world’s most iconic brands and entertainment franchises, such as Game of Thrones, Harry Potter, and Star Wars. Gibeau’s groundbreaking series of studio acquisitions, including Gram Games and Small Giant Games, along with innovation and success across the games portfolio have positioned Zynga as among the fastest growing public gaming companies in the world in 2019, and have resulted in the highest quarterly bookings and revenue in Zynga’s history (Q3 ‘19). Gibeau spent more than two decades at Electronic Arts where he held a number of influential business and product leadership roles.
Overall, I am enthusiastic about the leadership at Zynga because (1) Mark Pincus is the founder and is still heavily involved and passionate in this company that he created 14 years ago, and (2) Frank Gibeau brings some major fire power to Zynga with his experience and expertise in the gaming industry and he will definitely help Zynga grow through both acquisitions and new games created not just on the mobile platform, but PC and console platforms as well.
What I Like
Zynga announced on February 10, 2021 that it reported its Highest Quarterly and Annual Revenue and Bookings in Zynga History, that it generated Record Quarterly and Annual Operating Cash Flow, that it is uniquely positioned as one of the Leading Mobile Game Publishers in the World, and that it is executing on Growth Initiatives in 2021 and Beyond. I am extremely excited about the launch of Star Wars: Hunters to the point I may just go buy a Nintendo Switch as soon as possible – if I can find one in stock. Plus, Zynga’s somewhat recent management addition of Frank Gibeau should help immensely as it transitions from mobile gaming only to PC and console as well. Also, based on my projections of Zynga, I like the current price it is trading at so I will be buying more while I believe it is undervalued.
Lastly, Zynga’s spending in terms of acquisitions is quite aggressive and forward thinking. Its strategy of focusing on acquiring premier branded games and competitors, rather than remaining idle and losing market share of the ever growing cross platform gaming industry, appears like it will serve investors well.
What I Do Not Like
To contradict what I like about Zynga – I am not thrilled that it has long-term debt due beyond the next 12 months totaling $1.18 billion. That seems like a lot of debt to a small time investor like me…..but if Zynga can expand its market share through cross platform games, then I think it will see profits in the next 1-2 years that will be tip its balance sheet well into the positive. Another negative I see with Zynga is that although its acquisitions of other tech/gaming companies may help spring it forward, it could also be a huge dud for Zynga. As an example, Echtra Games Inc. – which the acquisition cost is not yet disclosed – seems like a risky gamble because Echtra Games only has one (1) flagship game called Torchlight III. Not familiar with it?… neither was I, but it is available on Steam, XBox One, PS4 and Nintendo Switch, and was created by developers that were involved in Diablo (hopefully that means some good development will come from the acquisition). Ultimately, Zynga’s spending habits of buying out other gaming competitors rather than investing in R&D internally could be a major blow to its overall profitability if these acquisitions do not lead to new games that are loved by millions going forward.
Fair Price of Zynga Stock
Zynga has been trading for try past few months as low as $9.61 a share, to as high as $12.32 a share, and with a present value of $10.18. Certain analysts believe a fair price for a share of Zynga stock to be $11.62 which I think is a low valuation. Zynga shares have seen seen a 344% gain over the past five years from $2.27 per share to now $10.18 per share. I think it will continue to see growth with its recent acquisitions bolstering the amount of premier mobile games in its arsenal, as well as its launch into the cross platform gaming industry – including Star Wars: Hunters which is set to launch later this year on the Nintendo Switch. I give Zynga a fair price of $12.50 per share and expect to see a 20-25% return by year end. With that said, I will continue to buy Zynga stock at its present price per share for the next quarter and beyond.
Don’t forget to stop by next week for my latest review where I dive into a known or unknown tech stock that may fit right into your portfolio. Maybe you can guess what it is, my hint to you is that it is in the computing/graphics industry and has seen a gain of over 3,000% in the last 5 years! I hope you enjoyed this post and would appreciate it if you like and share it across your social media platforms.
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