Zynga Inc (ZNGA)

[Trevor11]

ZNGA: GROWING FASTER THAN INDUSTRY, SOLID RETURN TO GROWTH MODE








GREATLY IMPROVED RESULTS

ZYNGA BACK IN GROWTH MODE

ZYNGA GROWING FASTER THAN THE INDUSTRY GIANTS

INVESTORS CAN NOW VIEW ZYNGA AS A CASH FLOW MACHINE

ZYNGA IS STARTING TO PRODUCE STRONG FINANCIAL RESULTS.

ZYNGA (ZNGA) IS TRADING AT HIGHS NOT SEEN SINCE BACK IN 2014.

THE RECENT RALLY IN THE STOCK HASN'T PRICED IN THE RETURN TO GROWTH

THE STOCK WILL SEE MULTIPLE EXPANSION TO LEVELS SIMILAR TO INDUSTRY PEERS.

RECENT GAINS IN ZYNGA AREN'T PRICING IN THE SOLID RETURN TO GROWTH MODE OF THE COMPANY




ZYNGA (ZNGA) IS TRADING AT HIGHS NOT SEEN SINCE BACK IN 2014.





ZYNGA: STILL NOT PRICED FOR GROWTH MODE

NOV.23.17

ABOUT: ZYNGA (ZNGA)

Stone Fox Capital
Long/short equity, growth at reasonable price, research analyst, Deep Value
Stone Fox Capital

(9,149 followers)

SUMMARY
ZYNGA IS STARTING TO PRODUCE STRONG FINANCIAL RESULTS.
THE RECENT RALLY IN THE STOCK HASN'T PRICED IN THE RETURN TO GROWTH for the game developer.
The stock trades below multiples of industry giants despite the potential for faster growth.

TO NO BIG SURPRISE HERE, ZYNGA (ZNGA) IS TRADING AT HIGHS NOT SEEN SINCE BACK IN 2014. These gains come on the back

of GREATLY IMPROVED RESULTS that my previous research highlighted would eventually push the stock higher.
Zynga now trades over $4 for an enterprise value of $3 billion. Is the stock still one worth owning considering the double from the early 2016 lows?

FRANCHISE GAME GROWTH
By all measures, Zynga delivered a Q3 that altered the financial view of the company. THE MOBILE GAME DEVELOPER PRODUCED THE BEST FINANCIAL TOP LINE MEASURES IN FOUR YEARS WHILE SHOWING FINANCIAL DISCIPLINE ON OPERATIONS.
As has long been pointed out, Zynga was actually a sizable game developer and should've been highly profitable with annual revenues approaching $800 million. For Q3, the company produced net income reaching $18 million and adjusted EBITDA climbing to $44.6 million or nearly 20% of revenues. These numbers are more in line with the expectations for the scale of the company.
The positive shift on the bottom line allows investors to start focusing on Zynga returning to growth mode.
The stock initially traded weak following Q3 results, but has rallied to new highs considering a BULLISH OUTLOOK FROM THE ONGOING MOBILE GROWTH.
Mobile bookings were only up 15% YoY to $186.5 million causing total bookings to only rise 9%. My thesis has long stated that the stock would trade higher if only viewed on the basis of this consistent growth in mobile without the headwinds from declining web revenues and bookings.

Source: Zynga Q3'17 presentation

The company guided to total Q4 bookings of $210 million. The number didn't initially sound impressive,[ BUT ZYNGA HAS A MULTI-YEAR HISTORY OF CONSERVATIVE GUIDANCE. Note that initial Q3 bookings guidance was a multi-year high of $205 million and the company delivered $213 million. A similar performance in Q4 will deliver bookings of $220+ million for a multi-year high.

Possibly even more importantly is the guidance of Q4 net income hitting $13 million and adjusted EBITDA of $35 million. INVESTORS CAN NOW VIEW ZYNGA AS A CASH FLOW MACHINE, if these are the lowball numbers for Q4 in a year where FREE CASH FLOW IS ALREADY AT $61 MILLION.
The company should be ON PACE FOR A SOLID 2018 with the addition of the card games from the $100 million cash purchase of Peak Games and the recent release of Words With Friends 2. Better yet, the investment thesis is highly de-risked due to most of the financial performance delivered from franchise games.

Some of the key franchise games saw the following growth in mobile:

• ZYNGA POKER - REVENUE UP 78%, BOOKINGS UP 81% YOY.
• WORDS WITH FRIENDS - REVENUE UP 9%, BOOKINGS UP 10% SEQUENTIALLY.
• CSR2 - REVENUE UP 8%, BOOKINGS UP 12% SEQUENTIALLY.

DEEP VALUE

While all of the financial metrics have seen substantial improvements and the strong shift to mobile has ZYNGA BACK IN GROWTH MODE, the stock hasn't really caught up with the improvements even up at $4. As highlighted in the past, the stock still trades below the P/S multiples of industry players like Electronic Arts (EA) and Activision Blizzard (ATVI).

ZNGA PS Ratio (Forward 1y) data by YCharts

Both of the INDUSTRY GIANTS HAVE MARKET VALUES IN EXCESS OF $30 BILLION WITHOUT THE SAME GROWTH POTENTIAL. Or at the least, analysts forecast ZYNGA GROWING FASTER THAN THE INDUSTRY GIANTS next year and the smaller revenue base increases the odds that a hit game contributes to significant upside in both revenues and the stock.
Takeaway
THE KEY INVESTOR TAKEAWAY is that the RECENT GAINS IN ZYNGA AREN'T PRICING IN THE SOLID RETURN TO GROWTH MODE OF THE COMPANY. As the mobile-game developer starts producing consistent cash flows, THE STOCK WILL SEE MULTIPLE EXPANSION TO LEVELS SIMILAR TO INDUSTRY PEERS.

Source:

https://seekingalpha.com/article/4127347-zynga-still-priced-growth-mode




( SHORT SELLERS EXPIRING TODAY ) NOVEMBER 24, 2017

CLOSE @ 1:00PM ET. ( NOVEMBER 24, 2017 )


NEW YORK STOCK EXCHANGE
CLOSED – THANKSGIVING DAY HOLIDAY ( NOVEMBER 23, 2017 )



www.theholidayschedule.com/nyse-holidays.php










SEE
RECAP BELOW:







SHORT SELLERS EXPIRING FRIDAY NOVEMBER 24, 2017

( SEE BELOW )



CALLS FOR NOVEMBER 24, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171124C00003500 2017-11-10 11:48PM EST 3.50 0.49 0.11 0.44 0.00 - 4 4 25.00%
ZNGA171124C00004000 2017-11-17 3:58PM EST 4.00 0.02 0.02 0.04 -0.01 -33.33% 828 313 35.94%
ZNGA171124C00004500 2017-11-15 3:38PM EST 4.50 0.01 0.00 0.02 0.00 - 70 74 75.00%



CALLS FOR NOVEMBER 24, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171124P00003500 2017-11-10 11:48PM EST 3.50 0.23 0.00 0.02 0.00 - 57 52 68.75%
ZNGA171124P00004000 2017-11-15 1:16PM EST 4.00 0.16 0.08 0.12 0.00 - 10 60 46.88%
ZNGA171124P00004500 2017-11-03 10:44PM EST 4.50 0.60 0.57 0.65 0.00 - 20 0 115.63%





Source:

https://ca.finance.yahoo.com/quote/ZNGA/options?ltr=1


SEE BELOW

FUTURE EXPIRATIONS




CALLS FOR DECEMBER 1, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171201C00004000 2017-11-17 3:30PM EST 4.00 0.06 0.04 0.06 +0.02 +50.00% 30 314 22.66%
ZNGA171201C00005000 2017-11-17 11:53PM EST 5.00 0.02 0.00 0.02 0.00 - 133 70 71.88%

PUTS FOR DECEMBER 1, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171201P00003500 2017-11-14 10:10AM EST 3.50 0.02 0.00 0.43 0.00 - 50 320 153.91%
ZNGA171201P00004000 2017-11-17 12:31PM EST 4.00 0.15 0.11 0.15 -0.01 -6.25% 50 83 50.00%
ZNGA171201P00005000 2017-11-17 11:53PM EST 5.00 1.09 1.03 1.19 0.00 - 2 50 132.81





CALLS FOR DECEMBER 8, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171208C00003000 2017-11-10 11:48PM EST 3.00 1.29 0.85 0.93 0.00 - 1 1 0.00%
ZNGA171208C00004000 2017-11-17 11:53PM EST 4.00 0.08 0.06 0.10 0.00 - 30 0 24.61%


PUTS FOR DECEMBER 8, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171208P00004000 2017-11-10 11:49PM EST 4.00 0.22 0.18 0.22 0.00 - 55 55 57.42%
ZNGA171208P00004500 2017-11-10 11:49PM EST 4.50 0.29 0.53 0.89 0.00 - 10 0 110.94%





CALLS FOR DECEMBER 15, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171215C00001000 2017-09-15 10:45PM EST 1.00 2.81 2.88 3.55 0.00 - 5 5 540.63%
ZNGA171215C00001500 2017-06-16 10:58PM EST 1.50 2.07 2.39 2.93 0.00 - 1 0 352.34%
ZNGA171215C00002000 2017-06-02 10:47PM EST 2.00 1.56 1.88 1.96 0.00 - 800 492 0.00%
ZNGA171215C00002500 2017-09-19 2:16PM EST 2.50 1.41 1.40 1.47 0.00 - 4 4 0.00%
ZNGA171215C00003000 2017-11-13 1:31PM EST 3.00 0.86 0.91 0.98 0.00 - 11 925 0.00%
ZNGA171215C00003500 2017-11-17 3:44PM EST 3.50 0.45 0.43 0.51 -0.01 -2.17% 65 1,275 36.72%
ZNGA171215C00004000 2017-11-20 9:30AM EST 4.00 0.10 0.09 0.11 0.00 - 1 4,501 26.56%
ZNGA171215C00004500 2017-11-16 10:05AM EST 4.50 0.01 0.00 0.02 0.00 - 100 3,471 35.94%
ZNGA171215C00005000 2017-11-17 2:10PM EST 5.00 0.01 0.00 0.02 -0.01 -50.00% 30 508 56.25%
ZNGA171215C00005500 2017-07-21 10:49PM EST 5.50 0.03 0.00 0.07 0.00 - 175 175 82.81%
ZNGA171215C00007000 2017-07-14 10:46PM EST 7.00 0.01 0.00 0.02 0.00 - 5 5 100.00%


PUTS FOR DECEMBER 15, 2017

Contract Name Last Trade Date Strike Last Price Bid Ask Change % Change Volume Open Interest Implied Volatility
ZNGA171215P00002500 2017-06-02 10:47PM EST 2.50 0.10 0.00 0.05 0.00 - 1 1 114.06%
ZNGA171215P00003000 2017-10-27 2:51PM EST 3.00 0.01 0.00 0.04 -0.02 -66.67% 5 130 71.88%
ZNGA171215P00003500 2017-11-16 3:25PM EST 3.50 0.01 0.01 0.03 0.00 - 1 725 44.53%
ZNGA171215P00004000 2017-11-17 3:44PM EST 4.00 0.17 0.15 0.19 -0.02 -10.53% 26 88 44.14%
ZNGA171215P00004500 2017-11-07 2:27PM EST 4.50 0.88 0.59 0.65 0.00 - 1 2 67.19%
ZNGA171215P00005000 2017-11-10 11:49PM EST 5.00 1.08 1.05 1.10 0.00 - 10 10 79.69%
ZNGA171215P00005500 2017-10-16 2:38PM EST 5.50 1.70 1.47 1.62 0.00 - 1 1 85.94%





Source:

https://ca.finance.yahoo.com/quote/ZNGA/options?ltr=1