ZNGA - Embedded Expectations Analysis - 2018 11 21
Zynga Inc. (ZNGA:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) Earnings, with a 25.7x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management has concerns about their ability to maintain margins, drive growth through their existing user base, and their acquisition of Gram gamesSpecifically, management is confident that they are expecting to see a modest reduction in EBITDA in Q4 2018, compared to 2017. Moreover, they may be exaggerating the reach and popularity of the Match-3 category, and may lack confidence in their ability to drive future growth by leveraging their existing user base. Additionally, they may lack confidence in their ability to drive innovation by combining Match-3 and builder game mechanics with proven brands that attract global audiences, and may be concerned about their recent acquisition of Gram games. Furthermore, they may lack confidence in their ability to improve their marketing efficiencies by continuing to increase the licensed IP in their portfolio, and to maintain their Q3 gross margin levels in Q4
Zynga is a provider of social game services. The company develops, markets and operates social games as live services played on mobile platforms and on social networking sites. All of the company's games are free to play, and the company is engaged in the sale of virtual currency that players use to buy in-game virtual items, as well as providing advertisement-free versions of its mobile games through purchase. The company's advertising and licensing offerings include: mobile ads in its mobile games; display ads in its online web games; engagement ads and offers; branded virtual items and sponsorships that integrate relevant advertising and messaging within game play; and licensing its brands.
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