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It has been about a month since the last earnings report for Zynga (ZNGA). Shares have lost about 8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zynga due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zynga Incurs Loss in Q3, Revenues Increase Y/Y
Zynga reported third-quarter 2020 loss of 11 cents per share against earnings of 24 cents in the year-ago quarter.
Revenues surged 45.8% year over year to $503.3 million, driven by strength in live services.
In particular, contributions from the Social Slots portfolio, Words With Friends, CSR2 and the Casual Cards portfolio drove the top line in the reported quarter.
The Zacks Consensus Estimate for earnings and revenues was pegged at 9 cents per share and $628.1 million, respectively.
Total bookings came in at $628 million, up 59.1% year over year. The upside was driven by strong mobile bookings. The consensus mark for bookings was pegged at $627 million.
Zynga’s online game revenues (86.6% of total revenues) increased 54.8% year over year to $436 million on the back of its forever franchises — Toon Blast and Toy Blast — alongside Empires & Puzzles and Merge Magic!
Moreover, advertising revenues (13.4% of total revenue) and advertisement bookings (10.7% of total bookings) increased 5.8% and 5.1% year over year to $67.3 million and $67 million, respectively.
Mobile revenues (96.2% of total revenue) and mobile bookings increased 47.8% and 61.3% year over year to $484 million and $609 million, respectively. The increases were driven by robust live services performance.
On a geographic basis, revenues from the United States (62% of total revenues) grew 46.8% year over year to $312 million.
Moreover, International revenues (38% of total revenues) rose 44.2% to $191.4 million.
In the third quarter, user pay revenues were $436 million, up 55% year over year. User pay bookings were $561 million, up 69% year over year.
Zynga’s average mobile daily active users (DAUs) surged 53% year over year to 31 million.
Moreover, average mobile monthly active users (MAUs) increased 23% year over year to 83 million in the reported quarter.
Average mobile daily bookings per average mobile DAU (ABPU) rose 5% year over year to $0.213 in the reported quarter.
GAAP gross margin, as a percentage of revenues, declined to 53% from 61% in the year-ago quarter due to higher net increase in deferred revenues.
Non-GAAP operating expenses (55.5% of total revenue) grew 37.4% year over year to $279.4 million in the reported quarter, primarily due to higher sales and marketing investments.
Non-GAAP research & development (R&D), general & administrative (G&A) and sales & marketing (S&M) expenses increased 14%, 8.1% and 55.4% year over year to $73.8 million, $22.6 million and $183 million, respectively.
Adjusted EBITDA was $37.7 million compared with $27.5 million in the year-ago quarter.
As of Sep 30, 2020, Zynga had cash, cash equivalents & short-term investments of approximately $758 million compared with $1.55 billion as of Jun 30, 2020.
Cash flow provided by operating activities in third-quarter 2020 was $133 million compared with $145 million in second-quarter 2020. Free cash flow was $109 million in the third quarter compared with $142 million in the previous quarter.
For fourth-quarter 2020, Zynga expects revenues of $570 million and bookings of $670 million.
Management expects the top line to benefit from mobile live services with full-quarter contributions from Toon Blast and Toy Blast and Rollic’s hyper-casual games portfolio. However, a decline in older mobile and web titles is expected to partially offset growth.
For 2020, management expects revenues of $1.9 billion and bookings of $2.2 billion.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted -6.67% due to these changes.
Currently, Zynga has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Zynga has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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