Zynga (ZNGA) might be worth looking into as a potential buy-the-dip investment. This company’s stock has dropped 32.9% over the past three months. Its RSI score has dropped to 30.1, signifying that it is currently oversold.
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Zynga is a mobile gaming company that also operates its own $300-million per year mobile advertising business. It recently closed its $250-million purchase of digital advertising firm, ChartBoost. (See Zynga stock charts on TipRanks)
ChartBoost Tailwind
ChartBoost is just one of Zynga’s many big-budget acquisitions. ChartBoost’s core business is the monetization of mobile apps and websites. It currently has more than 500 advertising/app monetization customers.
ChartBoost increases Zynga’s total addressable market for advertising. The mobile advertising industry touts a projected CAGR of 32.5% from 2018 to 2026. It is expected to have a market size of $408.6 billion by 2026.
ChartBoost could eventually bump Zynga’s mobile ads business to bring in $500 million a year. Two years from now, Zynga could probably be generating $1 billion a year from advertising.
ZNGA is an affordable investment in the fast-growing mobile ads industry.
Zynga Deserves Higher Valuation
ZNGA has forward P/E valuation of only 16.2x. This is lower than Electronic Arts’ (EA) 19.3x. The relative undervaluation of Zynga is unfair. Electronic Arts has zero advertising business.
The mobile segment of EA (including its subsidiary Glu Mobile) is still not as big as Zynga’s $699-million per quarter mobile game bookings. Zynga has over 205 million monthly active players.
Zynga’s five-year revenue average growth is 24.5%. It is a high-growth stock that has affordable valuation ratios.
This company is financially healthy. The total cash position of Zynga is $1.5 billion. It has zero short-term debt, though its long-term debt is $1.32 billion.
Wall Street’s Take
The consensus among Wall Street analysts is that ZNGA is a Strong Buy, based on 12 Buy recommendations. The average Zynga price target is $12.02, implying 64.9% upside potential.
Conclusion
Zynga is more than just a mobile gaming company. It is a worthy investment because of its growing mobile advertising business.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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