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Will Live Services Growth Aid Zynga (ZYNGA) Q1 Earnings?

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Zynga is set to report first-quarter 2019 results on May 1.

Notably, the company’s earnings missed the Zacks Consensus Estimate in three of the trailing four quarters, the average negative surprise being 27.08%.

Zynga’s total daily active users (DAUs) were 22 million in fourth-quarter 2018, flat year over year. Additionally, the company’s monthly active users (MAUs) were 85 million, down 1 million year over year.

Zynga’s monthly unique users (MUUs) were 49 million in fourth-quarter 2018, same as the year-ago period. Moreover, the company’s monthly unique payers (MUPs) were 1.1 million in fourth-quarter 2018 compared with1.2 million in the year-ago period.

Zynga Inc. Price and EPS Surprise

Zynga Inc. Price and EPS Surprise | Zynga Inc. Quote

For the to-be reported quarter, the consensus mark for DAUs and MAUs is pegged at 25.81 million and 97 million, an increase of 14.7% and 9% year over year respectively. Additionally, the consensus mark for MUUs is anticipated to be 51 million, indicating an increase of 2% year over year. However, MUPs are expected to decline 2.5% year over year to 1.17 million in first-quarter 2019.

Moreover, the consensus mark for earnings has remained steady at 5 cents per share over the past seven days. The figure indicates solid growth of 150% year over year.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q1 Results

Zynga’s revenues in first-quarter 2019 is expected to benefit from growth in mobile live services. The company’s live services is supported by five franchises - CSR Racing, Words With Friends, Zynga Poker, Empires & Puzzles and Merge Dragons!.

Additionally, Zynga’s acquisition of Small Giant Games, creator of Empires & Puzzles franchise in the beginning of first-quarter 2019 is expected to diversify its game offerings.

Moreover, bookings growth in the to-be-reported quarter is likely to benefit from Gram Games, Small Giant Games and Merge Dragons! along with initial bookings contributions from Wonka’s World of Candy.

Zynga expects bookings of $325 million, up 48% year over year in first-quarter 2019. The Zacks Consensus Estimate is pegged at $320 million.

We believe the above factors may drive Zynga’s top line. Notably, management expects revenues to grow 15% year over year to $240 million in first-quarter 2019.

However, higher amortization and deferred revenue built up from the acquisitions is expected to hurt gross margins in the to-be-reported quarter. Moreover, increased sales and marketing expenses may hurt profitability.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Zynga has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post earnings beat this quarter:

Electronic Arts Inc. (EA - Free Report) has an Earnings ESP of +16.3% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SeaWorld Entertainment, Inc. has an Earnings ESP of +16% and a Zacks Rank #1.

Rent-A-Center, Inc. has an Earnings ESP of +22% and a Zacks Rank #1.

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