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Will Growth in Mobile Revenues Aid Zynga (ZNGA) Q2 Earnings?

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Will Growth in Mobile Revenues Aid Zynga (ZNGA) Q2 Earnings?

Zynga's (ZNGA) second-quarter 2018 results are expected to benefit from solid mobile live services and growing acquisitions.

Zynga ZNGA is set to report second-quarter 2018 results on Aug 1.

Notably, the company’s earnings per share (EPS) have met the Zack Consensus Estimate in all the trailing four quarters.

Revenues increased 7% year over year to $208.2 million, in the last reported quarter, driven by strong mobile revenues (up 13% year over year).

For second-quarter 2018, non-GAAP bookings are expected to be $228 million. However, the Gram Games acquisition may dilute profits.

Adjusted EBITDA is projected to be $19 million, down from the previous guidance of $27 million. Moreover, Zynga expects GAAP net loss of a couple of cents compared with its previous guidance of breakeven.

Key Factors to Consider

Zynga is well positioned to benefit from its strong foothold in the growing mobile gaming segment. In the last reported quarter, growth in mobile revenues was driven by strength in live services of Words With Friends, CSR2 and Zynga Poker.

Moreover, mobile average Daily Active users (DAU) base increased 24% year over year to 23 million, the highest since 2014, driven primarily by Casual Cards acquisition and growth in new user base.

Notably, the acquisition of Peak Games strengthened the company’s casual card game portfolio with the addition of popular mobile card games such as Spades Plus and Gin Rummy Plus. The acquisition of mobile game developer, Gram Games, well-known for games like Merge Dragons! and 1010!, is expected to boost the company’s mobile DAU by 3 million.

Moreover, the company’s Words With Friends for Facebook FB has gained significant traction and bodes well for top-line growth.

Zynga’s average monthly unique payers (MUPs) are expected to increase with the company’s efforts to cross sell its products and enhance user engagement. Further, the company anticipates advertising revenues to grow year over year.

Additionally, the new share buyback program worth $200 million bodes well for bottom line growth.

Intensifying Competition to Hurt Results

However, intensifying competition from the likes of Activision Blizzard ATVI, Take-Two Interactive TTWO and Gluu Mobile GLUU is a major headwind.

Both Activision and Take-Two have a strong line-up of well-known franchises that are expected to drive top-line growth as well as market share expansion.

Moreover, Glu Mobile’s diverse mobile gaming portfolio, which includes titles like Kim Kardashian: Hollywood, Design Home and Covet Fashion are expected to boost revenues. Addition of new features and live operations are expected to boost user engagement.

Other Expected Releases

Activision and Take-Two, a couple of players from the same space, are slated to report on Aug 2.

While Take Two carries a Zacks Rank #4 (Sell), Activision has a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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