Zynga’s share price: What to expect in Q3 earnings

Zynga’s [ZNGA] share price is up over 45% this year as investors bet on the growth of mobile gaming in the pandemic. Last quarter, the mobile gaming publisher delivered its highest revenue and bookings performance in its history. With lockdown measures having eased in the period the upcoming results will cover, however, expectations are that Zynga’s share price may well see a dip.

That said, with the company topping Wall Street expectations three quarters in a row, is Zynga’s share price in for a post-earnings boost?

When is Zynga reporting Q3 earnings?

4 November

What happened last quarter?

In the second quarter, Zynga saw a $16 loss per share, a drop from the $6 loss per share seen in the same period last year. Overall, Zynga posted a net loss of $150m, $10m better than expected thanks to improved operating performance. Despite the losses, revenue came in at $452m, up 47% from the previous year and beating Zynga’s own guidance by $22m. Bookings came in at $518m, again beating Zynga’s own guidance and up 38% from the previous year Driving revenue were live services with better-than-expected results from its social slots games.

Zynga’s share price dropped over 11% within three days of the results coming out, and has struggled to regain those losses ever since. Shareholders will be hoping for a bumper performance this quarter to put some power behind the stock.

Why should investors care about Zynga’s share price?

Mobile gaming growth during lockdown

Zynga’s second quarter performance benefitted from people killing time during lockdown with mobile games. On average, Zynga saw 22 million daily active users on mobile during the quarter, 4% ahead of the same period last year. Revenue from online games increased 61.3% to more than $388.2m, while mobile revenues — which represent 95% of all revenues — grew by 50.9%.

However, Zynga cautioned that the bump in mobile users was front loaded to the height of lockdown, with its highest ever number of mobile users peaking between April and early May, before dropping back to levels consistent with the first quarter of the year. With mobile gaming representing the bulk of revenue, just how severe this decline has been could influence the direction Zynga’s share price heads post-earnings.

Backed by institutions

Simply Wall St data shows that institutions own over 70% of Zynga. While there’s nothing unusual about large institutional investment, especially in a growing company investors considering Zynga’s share price can take courage from this presence. These institutional investors will have their own analysts who will have examined the company, assessing risk and likely profits. The largest shareholder is Vanguard, with an 8.1% stake.

That said, given the size of some institutions’ investments, Zynga’s share price could wobble if one decides to sell its stock.

What is Wall Street expecting for Zynga’s share price?

Wall Street is expecting earnings to come in at $0.90 a share, up from the $0.05 seen in the same period last year. Revenue is pegged at $625.74m, up 62.5% from the $384.97m seen last year.

Is a beat on the cards? In the past four quarters, Zynga has beaten analyst expectations three times. Last quarter, earnings came in at $0.10 a share, easily topping the expected $0.08 per share.

Zynga itself expects $445m in revenue for the second quarter, with bookings of $620m. Net losses are expected to increase in the third quarter, coming in at $150m, down from a net income of $230m in Q3 2019. Behind the increased losses is a $314m one-time charge for the sale of its San Francisco headquarters, and higher deferred revenue.

“Live services will drive the vast majority of our topline performance, led by our forever franchises, including full quarter contributions from Toon Blast, Toy Blast and Merge Magic!. This overall momentum will be partially offset by year-over-year declines in older mobile and web titles. We also expect year-over-year user pay growth to more than offset declines in advertising yields,” Zynga stated in its third quarter guidance.

Among the analysts tracking the stock on Yahoo Finance, Zynga’s share price has an average $11.52 price target. Hitting this would represent a 28.1% upside on the current price (as of 30 October’s close). Of the 15 analysts offering recommendations, two rate the stock a Strong Buy and five rate it a Buy.