Zynga Shares Down 5% Pre-Market On 3Q Loss

Shares of Zygna were down 5% in pre-market trading on Nov. 5 as the mobile game developer reported a loss in the third quarter even as mobile gaming demand increased during the pandemic.

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Zynga’s (ZNGA) 3Q revenue surged 45.8% to $503 million driven by the company’s live services and stronger-than-anticipated performances from Words With Friends, Social Slots portfolio and CSR2 as people spend more time at home amid the pandemic. Bookings increased 59% to $628 million.

Zynga posted a net loss per share of $0.11 in 3Q20 compared to EPS of $0.24 in 3Q19. Analysts expected a loss per share of $0.13 on a reported basis.

CEO Frank Gibeau stated, “Extending our strength in live services, we recently launched one of our key franchises Harry Potter: Puzzles & Spells to global fanfare and positive player reviews and closed our acquisition of Rollic on October 1 – marking our entry into the high-growth, hyper-casual games category. Today, we are raising our full year 2020 guidance and are uniquely positioned to be an interactive entertainment growth leader in 2021 and beyond.”

Coming to the 4Q outlook, Zynga expects revenue to rise 41% year-over-year to $570 million. It predicts a net loss of $92 million in 4Q20 compared to a net loss of $4 million in 4Q19.

The company raised its full-year guidance based on strong live services performance to-date and the Rollic acquisition. It now expects 2020 revenue to grow 46% to $1.93 billion compared to the prior outlook of $1.8 billion. Zynga expects 2020 bookings to come in at $2.24 billion, up 43% year-over-year.

Following the earnings release, Oppenheimer analyst Andrew Uerkwitz reiterated a Buy rating with a $11 price target, stating, “While we think that this high rate of growth is unsustainable, we expect it to stay elevated on changed consumer behavior. Moreover, we believe that Zynga has the resources to scale and drive more synergies with recent acquisitions.”

He also noted, “Mgmt indicated that the company is assessing debt financing as it continues to sustain growth via acquisitions. Mgmt remains positive that the company is well-positioned to navigate through upcoming IDFA challenges as Zynga focuses on both integrating Rollic and Peak acquisitions and maintaining inorganic and organic growth.” (See ZNGA stock analysis on TipRanks)

The Street is cautiously optimistic about Zygna, with a Moderate Buy analyst consensus based on 12 Buys, 2 Holds and 1 Sell. With shares rising an impressive 61% year-to-date, the average analyst price target of $11.70 indicates an upside potential of 18.5% in the coming months.