A month has gone by since the last earnings report for Zynga . Shares have added about 18.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zynga due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zynga’s Q1 Loss Narrows Year Over Year, Revenues Rise
Zynga reported first-quarter 2020 loss of 11 cents per share. The figure was narrower than a loss of 14 cents reported in the year-ago period.
Revenues jumped 52.1% year over year to $403.8 million driven by strength in live services, and robust growth in international markets.
In particular, Merge Dragons!, Empires & Puzzles, and contributions from Merge Magic! and Game of Thrones Slots Casino drove top-line growth in the reported quarter.
The Zacks Consensus Estimate for earnings and revenues was pegged at 5 cents per share and $406 million, respectively.
Total bookings came in at $425 million, up 18.1% year over year driven by strong mobile bookings. The consensus mark for bookings was pegged at $406 million.
Quarter Details
Zynga’s online game revenues (85.3% of total revenues) increased 72% year over year to $344.4 million on the back of its five popular franchises — CSR Racing, Words With Friends, Zynga Poker, Empires & Puzzles and Merge Dragons! and strong player engagements across titles as a result of coronavirus induced self-quarantine by users globally.
Notably, Empires & Puzzles and Social Slots portfolio witnessed record revenues and bookings in the reported quarter.
Advertising revenues (14.7% of total revenue) and advertisement bookings (13.9% of total bookings) decreased 8.9% and 8.7%, respectively year over year to $59.4 million and $59.2 million attributed to lower advertising demand as a result of coronavirus lockdown.
Mobile revenues (95.8% of total revenue) and mobile bookings increased 57.3% and 19.7%, respectively year over year to $387 million and $405.5 million. The increase was driven by robust live services performance.
CSR2 was a solid contributor in the first quarter with the successful launch of Elite Customs — a new feature allowing players to customize and upgrade their car collections using new liveries, interiors, wheel upgrades and more — and a second Legends pack.
On a geographic basis, revenues from the United States (60.1% of total revenues) increased 41.3% year over year to $243 million.
Moreover, International revenues (39.9% of total revenues) increased 73.1% to $161 million. The company benefited from self-publishing of Empires & Puzzles in South Korea, Japan and Taiwan in the first quarter.
User-Base Details
In the first quarter, user pay revenues were $344 million, up 72% year over year, and user pay bookings were $366 million, up 24% year over year.
However, Zynga’s average mobile daily active users (DAUs) decreased 7% year over year to 21 million. The addition of Empires & Puzzles and Merge Magic! was more than offset by decreases in older mobile titles such as Zynga Poker and chat games.
Moreover, average mobile monthly active users (MAUs) decreased 5% year over year to 68 million in the reported quarter, primarily due to declines in Zynga Poker, chat games and older mobile titles, partially offset by the additions of Empires & Puzzles, Merge Magic! and Merge Dragons!.
On a sequential basis, both mobile DAUs and mobile MAUs increased modestly, led by growth in the company’s Casual Cards portfolio and Words With Friends.
Average mobile daily bookings per average mobile DAU (ABPU) grew 27% year over year to $0.216 in the reported quarter.
Operating Details
GAAP gross margin as a percentage of revenues expanded to 64% from 54% in the year-ago quarter due to a lower net increase in deferred revenues.
Non-GAAP operating expenses (51.6% of total revenue) increased 13.6% year over year to $208.4 million in the reported quarter primarily due to increase in sales and market investments.
Non-GAAP research & development (R&D), general & administrative (G&A) and sales & marketing (S&M) expenses increased 3.8%, 8.6% and 21% year over year, to $67.1 million, $21.2 million and $120.1 million, respectively.
Adjusted EBITDA was $68.5 million against a negative $18.1 million in the year-ago quarter.
Balance Sheet
As of Mar 31, 2020, Zynga had cash and cash equivalents & short-term investments of approximately $1.26 billion compared with $1.36 billion as of Dec 31, 2019.
Cash flow used in operating activities in first-quarter 2020 was $35.1 million compared with $94 million cash flow provided from operating activities in fourth-quarter 2019. Free cash flow was negative $43.7 million in the first quarter compared with $89.2 million in the previous quarter.
Guidance
For second-quarter 2020, Zynga expects revenues of $400 million and bookings of $460 million.
Management expects the top line to benefit from mobile live services with expected sequential growth across its five forever franchises as well as the year-over-year additions of Merge Magic! and Game of Thrones Slots Casino.
Operating expense is expected to increase sequentially. Adjusted EBIDTA is expected to be $32 million. Net loss is expected to be $60 million.
For 2020, management expects revenues of $1.65 billion and bookings of $1.8 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 165.71% due to these changes.
VGM Scores
At this time, Zynga has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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Why Is Zynga (ZNGA) Up 18.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Zynga . Shares have added about 18.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Zynga due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zynga’s Q1 Loss Narrows Year Over Year, Revenues Rise
Zynga reported first-quarter 2020 loss of 11 cents per share. The figure was narrower than a loss of 14 cents reported in the year-ago period.
Revenues jumped 52.1% year over year to $403.8 million driven by strength in live services, and robust growth in international markets.
In particular, Merge Dragons!, Empires & Puzzles, and contributions from Merge Magic! and Game of Thrones Slots Casino drove top-line growth in the reported quarter.
The Zacks Consensus Estimate for earnings and revenues was pegged at 5 cents per share and $406 million, respectively.
Total bookings came in at $425 million, up 18.1% year over year driven by strong mobile bookings. The consensus mark for bookings was pegged at $406 million.
Quarter Details
Zynga’s online game revenues (85.3% of total revenues) increased 72% year over year to $344.4 million on the back of its five popular franchises — CSR Racing, Words With Friends, Zynga Poker, Empires & Puzzles and Merge Dragons! and strong player engagements across titles as a result of coronavirus induced self-quarantine by users globally.
Notably, Empires & Puzzles and Social Slots portfolio witnessed record revenues and bookings in the reported quarter.
Advertising revenues (14.7% of total revenue) and advertisement bookings (13.9% of total bookings) decreased 8.9% and 8.7%, respectively year over year to $59.4 million and $59.2 million attributed to lower advertising demand as a result of coronavirus lockdown.
Mobile revenues (95.8% of total revenue) and mobile bookings increased 57.3% and 19.7%, respectively year over year to $387 million and $405.5 million. The increase was driven by robust live services performance.
CSR2 was a solid contributor in the first quarter with the successful launch of Elite Customs — a new feature allowing players to customize and upgrade their car collections using new liveries, interiors, wheel upgrades and more — and a second Legends pack.
On a geographic basis, revenues from the United States (60.1% of total revenues) increased 41.3% year over year to $243 million.
Moreover, International revenues (39.9% of total revenues) increased 73.1% to $161 million. The company benefited from self-publishing of Empires & Puzzles in South Korea, Japan and Taiwan in the first quarter.
User-Base Details
In the first quarter, user pay revenues were $344 million, up 72% year over year, and user pay bookings were $366 million, up 24% year over year.
However, Zynga’s average mobile daily active users (DAUs) decreased 7% year over year to 21 million. The addition of Empires & Puzzles and Merge Magic! was more than offset by decreases in older mobile titles such as Zynga Poker and chat games.
Moreover, average mobile monthly active users (MAUs) decreased 5% year over year to 68 million in the reported quarter, primarily due to declines in Zynga Poker, chat games and older mobile titles, partially offset by the additions of Empires & Puzzles, Merge Magic! and Merge Dragons!.
On a sequential basis, both mobile DAUs and mobile MAUs increased modestly, led by growth in the company’s Casual Cards portfolio and Words With Friends.
Average mobile daily bookings per average mobile DAU (ABPU) grew 27% year over year to $0.216 in the reported quarter.
Operating Details
GAAP gross margin as a percentage of revenues expanded to 64% from 54% in the year-ago quarter due to a lower net increase in deferred revenues.
Non-GAAP operating expenses (51.6% of total revenue) increased 13.6% year over year to $208.4 million in the reported quarter primarily due to increase in sales and market investments.
Non-GAAP research & development (R&D), general & administrative (G&A) and sales & marketing (S&M) expenses increased 3.8%, 8.6% and 21% year over year, to $67.1 million, $21.2 million and $120.1 million, respectively.
Adjusted EBITDA was $68.5 million against a negative $18.1 million in the year-ago quarter.
Balance Sheet
As of Mar 31, 2020, Zynga had cash and cash equivalents & short-term investments of approximately $1.26 billion compared with $1.36 billion as of Dec 31, 2019.
Cash flow used in operating activities in first-quarter 2020 was $35.1 million compared with $94 million cash flow provided from operating activities in fourth-quarter 2019. Free cash flow was negative $43.7 million in the first quarter compared with $89.2 million in the previous quarter.
Guidance
For second-quarter 2020, Zynga expects revenues of $400 million and bookings of $460 million.
Management expects the top line to benefit from mobile live services with expected sequential growth across its five forever franchises as well as the year-over-year additions of Merge Magic! and Game of Thrones Slots Casino.
Operating expense is expected to increase sequentially. Adjusted EBIDTA is expected to be $32 million. Net loss is expected to be $60 million.
For 2020, management expects revenues of $1.65 billion and bookings of $1.8 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 165.71% due to these changes.
VGM Scores
At this time, Zynga has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Zynga has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.