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Is Zynga a Good Investment Right Now?

This mobile gaming company continues its acquisition strategy but faces uncertainty due to Apple’s privacy push; is Zynga a good investment?

Of all the video game revenue earned last year, mobile gaming accounted for 57%, no doubt fueled by the pandemic, and a recent survey estimates that 75% of those gains will remain for at least two years. The gaming sector is projected to be worth over $270 billion by 2030, and as one of its leaders, Zynga (NASDAQ: ZNGA) is expected to take a nice chunk out of that sum. Since its inception, the company has been on an acquisition spree, fueling its own growth by snatching up over 30 game firms and growing its portfolio and user base. 

Recently, Apple, in an effort to enhance user privacy, unleashed its Identity for Advertisers (IDFA) initiative, which gives users the option to opt-out of tracking and creating a problem for companies that depend on targeted ads. This led the company to adjust its guidance for the year as it works to find workarounds to the bottleneck, so is now the time to invest in Zynga?

The bull case for Zynga

Zynga had a terrific second quarter as it reported earnings of $0.02 per share, a 112.5% increase year-over-year (YoY). Additionally, revenue was up nearly 60% (52% higher than industry and sector average growth), bookings (sale of virtual goods) saw a surge of nearly 38%, and revenue from advertising grew by nearly 110%. All this was the result of its user base increase which was substantial as well; in fact, its daily active users (DAUs) and monthly active users (MAUs) were up 87% and 194%, respectively YoY. 

Zynga has an impressive portfolio of games that keeps growing with every acquisition like last year’s Rollic, maker of popular hyper-casual games, and owner of multiple games that have reached the number one download positions in app stores. To date, Zynga, responsible for games like ‘Farmville’ and ‘Words with Friends’, has amassed more than four billion downloads. The company is currently concentrating on expanding its live services (games in constant development with steady updates) and cross-platform offerings to enhance the multiplayer experience.

Its highly anticipated ‘Farmville 3’ is due for release sometime in the fourth quarter and its outlook until then looks rosy as well. For the year, the company expects YoY revenue growth to equal 38% and bookings to exceed 23%. 

The bear case for Zynga

Apple’s privacy initiative not only impacted behemoths like Facebook but smaller companies like Zynga as well, forcing the company to be cautious with its yearly guidance. It also forced the gaming platform to postpone the release of the aforementioned ‘Farmville 3’ from Q3 to Q4, and ‘Star Wars: Hunters’ from this year to 2022. 

In the last decade, Zynga’s MAUs dropped by nearly 45% as people migrated from Facebook (the company’s biggest host platform) to their mobile devices and the company didn’t pivot quickly enough. This led to its acquisition streak and today the company’s Monthly Unique Users (MUUs) number, an important growth metric, is down nearly 30% YoY indicating not only growth stagnation but a decline. 

So, is Zynga a good investment?

Yes, in the long term, I feel that Zynga is a solid investment. The company’s bread and butter are in its forever franchises (games like ‘Words with Friends’ and ‘CSR Racing’, which generate at least $100 million annually) and it is constantly working on expanding these high-margin products. Add to that its drive to grow its cross-platform and live services offerings and you have the makings of a solid growth company.

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Quickfire round:

1. Where is Zynga headquartered?

San Francisco

2. When was Zynga founded and by whom?

2007 by Justin Waldron, Eric Schiermeyer, Michael Luxton, Steve Schoettler, and Marc Pincus

3. What does Zynga mean?

The company was named after Marc Pincus’ late bulldog Zinga.