Why Analysts Remain So Positive on Zynga Even After a 50% Surge

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Published: September 17, 2019 10:50 am

Last Updated: January 30, 2020 3:43 pm

Zynga Inc. (NASDAQ: ZNGA) may have pulled back from its highs in August, but the stock is still up close to 50% so far this year. The mobile and social video game maker has received more positive analyst coverage in 2019, and new phones and a slate of new titles seem to be driving more interest.

Stephens has added Zynga to its Best Ideas List in place of Electronic Arts Inc. (NASDAQ: EA). The firm expects mobile gaming to see a wave of consolidation in the coming six to 18 months, and Zynga is said to have seen more than its fair share of successful acquisitions.

Along with the positives from Gram Games and Small Giant Games, Stephens also sees the state of its current games portfolio making a very attractive risk-reward profile for investors.

While Zynga remains a very speculative name compared to more established large video game publishers, Stephens believes that the company deserves a premium valuation because its dominance in mobile gaming makes it the best-positioned company in the field.

The Stephens call’s timing also should stand out because this was just one day ahead of a presentation by Zynga Chief Executive Officer Frank Gibeau at the Goldman Sachs Communacopia Conference, shortly after the opening bell on Wednesday.

Zynga’s adjusted earnings of $0.17 per share in 2018 are shown to have an expected follow-up (from Refinitiv) of $0.23 per share in 2019 and then $0.27 per share in 2020. The revenues of $969.5 million in 2018 are projected to pop 56% to $1.52 billion in 2019 and then another 12% to $1.7 billion in 2020.

The call from Stephens, which was already formally at Overweight after it raised its target to $8.25 from $6.50 at the end of May, echoes a Wedbush Securities call from August in which that firm also added Zynga to its Best Ideas List. It also follows a raised guidance for 2019 when Zynga beat its earnings expectations back in July.

Zynga was trading up 1.6% to $5.97 on Tuesday, in a 52-week range of $3.32 to $6.65 and with a consensus target price of $7.36.

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