ZNGA: "...SETS THE COMPANY UP FOR SOLID GROWTH."
Performance
Zynga: More Slots
Nov. 13, 2015 4:30 PM ET | 7 comments | About: Zynga (ZNGA)
Disclosure: I am/we are long ZNGA. (More...)
Summary
Zynga continues to struggle as the business shifts away from virtual farms on Facebook.
The company bought Rising Tide Games to bring more talent and technology related to the social casino sector.
The stock remains extremely cheap with a stock buyback and promising new game categories.
The game developer that originally started as enabling players to tend to virtual farms is quickly becoming a casino-dominated company with a focus on popular slots. For investors not familiar with mobile slot games, the top grossing charts are now littered with related games. Anybody like myself that has tried playing the games and didn't understand the appeal needs to quickly face the reality.
The key to Zynga (NASDAQ:ZNGA) is that the company is not completely reliant on success of slots. The historical franchises in the farm, casino, and words categories are still generating solid revenue levels though generally without the promise of growth any more due to the loss of Web revenues that include the Facebook (NASDAQ:FB) platform.
Along with the action strategy category and the stock buybacks, should investors start viewing Zynga in a more bullish light and promising future beyond the farm?
Established Slot Games
As highlighted in previous research, Zynga is already well established in the slots category. The long-time success of Zynga Poker already made the company a force in social casino, but the company failed miserably at porting that poker game onto mobile.
Combined with the purchase of Spooky Labs a couple of years back, Zynga already has Hit It Rich! Slots and Wizard of Oz Slots in the top five grossing casino apps until recently. Due to these two games, the slot franchise saw bookings grow an incredible 123% from last year, though it experienced a 2% sequential decline.
During Q3, the casino games combined for 45% of online game revenues:
Zynga Poker - 17%
Hit It Rich! Slots - 16%
Wizard of Oz Slots - 12%
As highlighted before, the slot games are heavily populated in the top grossing charts. Currently, eight casino games mostly focused on slots sit in the top 20 top grossing games on the iPad. The two Zynga slot games are ranked #9 and #20.
(click to enlarge)
Source: App Annie
The numbers on the iPhone are nearly as impressive with six games in the top 20. Google Play is similarly loaded with casino-related games after the top five grossing games.
New Endeavors
Considering the vast array of slot games that generate significant amounts of revenue, Zynga has continued making moves into releasing more related games. Clearly, consumers have different preferences in the category or a desire to play multiple games as opposed to the other categories where consumers gravitate to the best game.
Considering this knowledge, the company bought Rising Tide Games for $22 million. It recently launched Black Diamond Casino worldwide. The slots game ranked in the top of the free downloads for a few days, but the game isn't making much headway in generating revenues.
Zynga plans to release Princess Bride Slots in Q4. As well, the company is developing a Willy Wonka themed slots game for release in 2016.
Long term, ZNGA is building a strong foundation for real-money gaming should the initiatives ever gain traction. It isn't clear whether the social games would translate into success with actual real wagering, but the company does have a lead in the category over most, if not all mobile-game developers.
Takeaway
The investment thesis surrounding Zynga needs to shift towards action strategy and social casino games away from the current mindset of virtual farms. The purchase of Rising Tide Games provides more slots technology and along with the new slot games sets the company up for solid growth.
The recommendation remains to BUY ZYNGA trading at $2.50 while the market misses this shift in business.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.
Source: seekingalpha.com/article/3684756-zynga-more-slots
