Zynga Stock Forecast: Zynga’s Stock Has More Upside Potential

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • I published two articles endorsing a buy rating for Zynga during December 2018 period. ZNGA’s 1 month gain is +13.62%.
  • ZNGA’s current price is now $4.44 – still below the average 12-month PT of $4.78 at TipRanks.
  • Goldman Sachs initiated ZNGA as a buy today and gave it a PT of $5.30. This favorable view from Goldman Sachs helped boost ZNGA’s price.
  • Adding more Zynga shares seems worth the risk. In spite of being the bigger company and posting profit ZNGA is still cheaper to own than GLUU.
  • Zynga will report its earnings next week. I expect it to beat the EPS estimate of 0.04 and revenue estimate of $257.3 million.

My two calls for you to bet on Zynga (ZNGA) last month were correct. ZNGA’s 30-day gain so far is +13.62%. I firmly believe that ZNGA has further upside potential. This stock only trades at $4.44, still below the average one year PT of $4.78 (derived from 11 analysts tracked by TipRanks).

The highest 12-month PT for ZNGA at TipRanks is $5.50.

(Source: TipRanks)

Goldman Sachs initiated a buy rating on ZNGA and gave it a PT of $5.30. This endorsement from Goldman Sachs helped boost ZNGA’s price by 2.3% during pre-trading today. My fearless forecast is that ZNGA can hit $5 soon after its Q4 2018 earnings report on February 6.

A Beat On Q4 EPS and Revenue Is Likely

The feasibility is there. Zynga only needs to report a beat on consensus EPS estimate of 0.04 and revenue estimate of $257.3 million. Beating revenue estimates is easy, thanks to Zynga’s purchase of Small Giant Games last year. I calculated that Empire & Puzzles game of Small Giant Games could contribute $16 million per month to Zynga’s topline.

The last quarter is Christmas shopping season so people got their 13th month pay and bonuses. In other words, big spending players of Zynga and Small Giant Games likely spent more on in-app purchases in Q4.

Zynga’s Q3 revenue was $233. Empires & Puzzles’s average $16 million monthly net sales could likely help Zynga’s Q4 revenue breach the $258 million milestone.  As per SensorTower’s estimates, Empire & Puzzles’ December 2018 global net revenue from Android/iOS was $23 million. It makes perfect sense that the other poker and social casino games of Zynga also posted a notable boost in December bookings.

(Source: MacroTrends)

Let us also remember that Zynga has a fast-growing mobile advertising business. The holiday quarter also likely boosted the ad sales of Zynga. Product and services advertisers usually ramp up their spending during the holiday quarter because they know people have more purchasing power from their 13th month pay and Christmas bonuses.

My fearless forecast is that Q4 2018 helped Zynga’s advertising business earn $75 million. This guesstimate is reasonable. Zynga has been posting 20%++ Y/Y growth in its quarterly ad sales.

(Source: Zynga)

We should now treat Zynga as a legitimate advertising service provider, which has obvious potential to deliver $100 million in quarterly ad revenue. Zynga’s ad platform for mobile devices is just perfect for the rising use of incentivized video ads/app installs. The  mobile global advertising industry is growing at CAGR of 22%. It is not as big as Facebook (FB) and Google (GOOG). However, Zynga is still well-positioned to benefit from the rapidly growing $105 billion/year mobile advertising business.

(Source: Statista)

Keeping Institutional Investors Happy

Delivering a consistent beat on quarterly revenue can trigger buy-side emotion (for ZNGA) from more institutional investors/hedge fund managers. The more large investors rallying behind Zynga’s stock, the better it is for small retail investors (like me).

Institutional investors only account for 75.14% of Zynga ownership. It will impress the largest stakeholders if Zynga can really deliver a $0.04 EPS next week. If it happens, BlackRock, Vanguard, and Artisan partners might raise their bets on ZNGA.

(Source: Nasdaq.com)

My Takeaway

If you have the extra cash, you should keep buying more ZNGA while it trades below $5. This company is turning a profit because it shrewdly bought other people’s hit mobile games. Zynga is also proving to be a smart digital advertising operator. Zynga is exploiting the popularity of incentivized video ads placed on its mobile games.

Watching 15-second ads in game is popular because gamers get free in-game items, energy, and virtual currencies.

My buy rating for ZNGA is fortified by the very bullish one-year forecast from I Know First. Zynga’s one-year market trend forecast has a predictability score of 135.56. Anything above 100 is already considered very bullish.

How to interpret this diagram.

 

Zynga’s stock is also a buy according to monthly technical indicators and momentum trend of moving averages.

(Source: Investing.com)

Past I Know First Forecast Success with ZNGA

I Know First has been bullish on ZNGA shares in past forecasts. On December 25, 2018 an I Know First algorithm issued a bullish 1 year forecast for ZNGA with a signal of 95.81 and a predictability of 0.68, the algorithm successfully forecasted the movement of the ZNGA share so far.  Since then, ZNGA shares have risen 20.99% in line with the I Know First algorithm’s 30 days forecast.

This bullish forecast for ZNGA was sent to I Know First subscribers on December 25, 2018.

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Please note-for trading decisions use the most recent forecast.