After markets closed on Wednesday, Zynga Inc. (NASDAQ: ZNGA) reported better-than-expected first-quarter results and a $250 million acquisition of an ad-tech company. It’s probably the latter that has added more than 5% to the share price Thursday.
Zynga also raised full-year revenue guidance by $100 million and now expects bookings to total $2.9 billion in 2021. It continues to forecast a net loss of $135 million, worse than the consensus estimate for a loss of around $117 million.
The share-price boost is largely attributable to a note from BofA Securities analyst Ryan Gee upgrading the stock from Neutral to Buy and raising his price target from $12 to $13.50. Citing strong first-quarter results, sustainable double-digit organic growth, international expansion and multiple cross-platform titles, Gee said that all added up to “underpin our view ZNGA is in a better position now than at any point in its history on mobile.”
Zynga’s “strategic pivot toward higher-growth/margin ad-tech … enhances the value of ZNGA’s network enough that we view risk/reward as favorable.” Here’s the BofA take on the Chartboost acquisition:
Acquiring Chartboost for $250mn accelerates ZNGA’s strategic pivot from publisher to platform, which we much prefer vs. studio M&A. We see several immediate and[long-term] benefits: 1) cost-savings as ZNGA drives [user acquisition]-spend through its own network (ZNGA’s sees $20-30mn in synergies in 2022); 2) new [revenues] via [third-party] app monetization/distribution; and 3) the combo of [first-party/third-party] data enhances the value of ZNGA’s own platform making it more attractive as an ad partner and/or potential acquirer.
In the near term, Zynga’s outlook “underwhelms,” according to Gee. But that’s only temporary: “We see delayed new [intellectual property] timing/higher [user-acquisition] spend limiting estimates in 2021 but see 2022 benefitting from scaling games, more ads, and less [user-acquisition] with accretion upside from Chartboost.”
Zynga stock traded up about 5% Thursday afternoon, at $10.65 in a 52-week range of $7.42 to $12.32. The consensus price target on the stock is $13.12. The average daily trading volume is 18.5 million shares, and nearly 21 million shares had changed hands with about 90 minutes left in Thursday’s trading session.