(ZNGA - Free Report
underwhelms with its first earnings report, but sees higher
earnings estimates. The stock is a Zacks #2 Rank (Buy).
Zynga Inc. develops, markets, and operates online social games on
the Internet, social networking sites and mobile platforms. The
company offers poker games, word games, and board games. The games
are available on various platforms, including Facebook, Google+
and Yahoo. Zynga Inc. was founded in 2007 and is headquartered in
San Francisco, California.
Limited Operating History
Zynga completed its initial public offering on December 15,
2011 and has reported earnings only one time. The first
report beat the Zacks Consensus Estimate on the top and bottom
Investors will key in on sales growth for
young companies like Zynga. In its first public
quarter, Zynga posted revenue of $311 million, $4 million ahead of the
Zacks Consensus Estimate. The bottom line was even better, with
a $0.02 outperformance of the Zacks Consensus Estimate of $0.03.
Gambling vs. Poker with Friends
Poker has been the mainstay for Zynga over the last few years and
continues to be in the top three for bookings generation. There
have been many calls for online poker to be legalized and taxed as
governments look to open up new revenue streams, and ZNGA's base
of 35 million players becomes a very attractive option for a
potential casino partnership.
Other games, like Words with Friends, have seen their use increase
of late. Words with Friends also benefited from an Alec Baldwin
meltdown before an American Airlines flight.
Estimates move higher following earnings
Following earnings earlier in the week, analysts have been
increasing estimates for 2012 and 2013. The Zacks Consensus
Estimate for 2012 was $0.19 in December 2011, and that ticked
higher to $0.22 in January 2012 and now stands at $0.26.
2013 Estimates have moved from $0.29 in December 2011 to $0.30 in
January 2012 and is currently at $0.32. As analysts get more
familiar with the company, there is a good chance that estimates
will continue to move higher.
ZNGA's valuation is a mixed picture at present. It trades at a
healthy premium to the industry average, carrying a trailing PE of
49X vs. 27x for the industry. On a forward basis, ZNGA trades at
46x compared to the 18x industry average. The company trades at a
discount in terms of price to book and price to sales, so its not
exactly cut and dry.
The recent price action shows some pretty big swings of late. The
recent earnings announcement saw a solid run up pre-earnings and
sell off following earnings. The selloff was overdone, and as a
result the stock traded higher by 4% the following day.
Brian Bolan is an Aggressive Growth Stock Strategist
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