Zynga Inc (ZNGA)

[Trevor11]

ZNGA: IN NEW-GROWTH-MODE(THE,STOCK,A,STRONG BUY)-May,10,2016,10:11,AM,ET






"THE KEY INVESTOR TAKEAWAY IS THAT ZYNGA IS BACK INTO GROWTH MODE."

"ANALYSTS NOW FORECAST REVENUES GROWING OVER 6% THIS YEAR TO $745 MILLION AND NEARLY 12% TO $833 MILLION NEXT YEAR. THE COMPOUNDED GROWTH RATE OF NEARLY 20% FROM THE $700 MILLION GENERATED IN 2015 WOULD BECOME A WELCOMED ADDITION TO THE ZYNGA STORY."


"...A HIT FROM THE NEW NATURALMOTION GAMES COULD DELIVER EVEN HIGHER GROWTH."




ZYNGA - Q1 EARNINGS USHER IN NEW GROWTH MODE
May 10, 2016 10:11 AM ET
|
About: Zynga (ZNGA)

Stone Fox Capital
?Follow (5,239 followers)
Long/short equity, growth at reasonable price, research analyst,

|
STONE FOX CAPITAL
SUMMARY
ZYNGA RESPONDED POSITIVELY TO SOLID Q1 EARNINGS.
The growth in mobile is finally eclipsing the declines in the non-mobile platforms.
THE STOCK IS A STRONG BUY AS ZYNGA FINALLY HEADS BACK INTO A GROWTH MODE.
The Zynga (NASDAQ:ZNGA) story is continuously framed as one of a struggling game developer trying to stay afloat. The missed story is that despite the CEO shuffles, the company HAS CONTINUED TO SUCCESSFULLY SHIFT TOWARDS MOBILE AND HIGHER USER AVERAGE PAYMENTS.
AFTER A BIG Q1 EARNINGS BEAT, ZYNGA TRADES BACK TOWARDS THE HIGHS OF THE LAST YEAR. THE STOCK THOUGH IS RELATIVELY CHEAP if the company has finally turned the corner on being a fully-fledged, mobile-game developer.
The well known story is that despite the success and general availability of the larger desktop screens, CONSUMERS HAVE SHIFTED AWAY FROM PLAYING SOCIAL GAMES ON THE FACEBOOK (NASDAQ:FB) platform. Even with the shift to mobile, Zynga still generated $43 million in non-mobile bookings.
IF INVESTORS VIEWED THE COMPANY AS MOBILE ONLY, THE VIEW WOULD BE SIGNIFICANTLY MORE POSITIVE BASED ON THIS SLIDE. IN THIS CASE, ZYNGA GREW BOOKINGS BY 31% OVER LAST Q1. EVEN THE DAU ACTUALLY GREW SEQUENTIALLY OVER THE PRIOR QUARTER.
(click to enlarge)
The amazing part is that Apple (NASDAQ:AAPL) only now became the largest platform partner. Even with the shift to mobile, users were still playing games like Farmville more via the Facebook platform until Q1. The real question over 2016 is when the company hits an inflection point where the declines in non-mobile become immaterial allowing the mobile growth to shine.
What keeps the turnaround under the radar is that the improvements in the business are due mostly to slots games and some growth in the core games. The company has not seen that big hit new game that would drive the stock price higher and coincidentally revenues.
THE STABILITY IN ZYNGA POKER AND WORDS WITH FRIENDS ARE IMPRESSIVE considering the later is now into the sixth year. The real catalyst for new games is the launch of the NaturalMotion games of CSR2 and Dawn of Titans in the 2H. The entry into the Match-3 category might provide a boost as well. Revenues from these categories have the potential for building on the existing revenue base, instead of only replacing revenues as the company has done in the last couple of years.
ANALYSTS NOW FORECAST REVENUES GROWING OVER 6% THIS YEAR TO $745 MILLION AND NEARLY 12% TO $833 MILLION NEXT YEAR. THE COMPOUNDED GROWTH RATE OF NEARLY 20% FROM THE $700 MILLION GENERATED IN 2015 WOULD BECOME A WELCOMED ADDITION TO THE ZYNGA STORY.


ZNGA SALES ESTIMATES FOR CURRENT FISCAL YEAR DATA BY YCHARTS
THE KEY INVESTOR TAKEAWAY IS THAT ZYNGA IS BACK INTO GROWTH MODE. The company is now seeing a lift in mobile users along with the continual growth in mobile bookings. For the first time in a long time, THE STOCK ACTUALLY BECOMES A GROWTH STORY HEADING INTO 2017. ANALYSTS FORECAST NEARLY 12% REVENUE GROWTH FOR THE YEAR AND SIGNS EXIST THAT A HIT FROM THE NEW NATURALMOTION GAMES COULD DELIVER EVEN HIGHER GROWTH.
With a market value of roughly $2 billion, ZYNGA SITS IN A POSITION WHERE THE ENTERPRISE VALUE IS RELATIVELY LOW DUE TO AT LEAST $1.3 BILLION IN CASH AND REAL ESTATE. The key though is that the company starts growing revenues to build on what should be the lows around $2.50.

Disclosure: I am/we are long ZNGA, AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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:

http://seekingalpha.com/article/3973529-zynga-q1-earnings-usher-new-growth-mode