Zynga Inc (NASDAQ:ZNGA) keeps winning at social gaming, so many shareholders are wondering what’s next? Shares of Zynga Inc (NASDAQ:ZNGA) continue to surge upward, buoyed by a strong earnings report the company released on May 5. Overall, shares are up 16.38% over the past 5 days, and 29.96% YTD. At a current share price of $3.34, ZNGA has a total stock market capitalization of $3.27 billion.
These are the best times that investors have seen for ZNGA in a long time. When the company released earnings on May 5, shares surged to their highest point in more than two years. And, at $3.34, they are now within striking distance of the 52-week high of $3.40. So what’s next for ZNGA?
To answer that question, you first have to dig a little bit into the financial numbers that Zynga Inc (NASDAQ:ZNGA) released for the quarter. There has been across-the-board performance in all key metrics used to measure growth at the company – including the most important metric, active users. A growing user base is essential at ZNGA, since it correlates directly with growing profitability.
In 1Q 2017, revenue increased 4% to $194.3 million, beating analyst expectations. The company posted a 19% increase in mobile revenue and a 27% increase in mobile bookings. Moreover, the company reported especially strong performance at one of its key franchises, Zynga Poker, which posted a 63% spike in revenue.
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$ZNGA 10-Day Chart Below:Going forward, it looks like this financial performance can be repeated. The company released guidance for the upcoming quarter, projecting $200 million in quarterly revenue. That, too, topped analyst expectations, which came in at just $198.1 million.
So you can see how Zynga appears to be firing on all cylinders now, powered by the success of its biggest franchise gaming properties: Slots, Words With Friends, Zynga Poker and FarmVille. The company continues to develop new games based around these franchises, which is important to retaining users and keeping its games fresh in the minds of users.
Case in point: On May 4, Zynga released another addition to its “With Friends” gaming franchise, called Crosswords With Friends. This game is offered in partnership with Time Inc.’s People magazine. Thus, each Sunday, Crosswords With Friends will feature a People-themed crossword puzzle that’s based around celebrities and pop culture.
Right now, Wall Street analysts have climbed aboard the Zynga bandwagon. As of May 8, 4 analysts had a “Strong Buy” recommendation on the stock, 2 had a “Buy”, 9 had a “Hold”, 1 had an “Underperform”, and 0 had a “Sell”. The current consensus price target for the stock is $3.41, which is almost exactly the company’s current stock price. The low estimate was $2.5 and the high estimate was $5.
The big question in the minds of investors should be how much upside is really left in this stock. Zynga is a clear leader in the social gaming category, and has a number of strong social gaming franchises that are cash cows for the company. So, there’s a lot to like. However, if future offerings continue to be just incremental updates to these social gaming franchises, doubts might arise as to whether there’s any more upside left for ZNGA.
There’s a reason why ZNGA’s stock has languished over the past two years – people are wondering how much more momentum is left in the social gaming space. And, as we saw last summer with the debut of Pokemon Go, it may be the case that people are looking for new types of mobile gaming experiences with their phones.
And, let’s not forget the company’s underlying financial condition. Yes, the company has plenty of cash on the books, and is growing revenue at a nice pace. However, the company still turned in a loss of a penny per share in its last quarter. That’s an improvement from a year ago, but analysts are still projecting a loss of a penny a share in 2Q 2017.
In other words, even if Zynga meets its revenue target of $200 million for the quarter, it still may not show a profit. That has to be concerning for investors.
Nevertheless, ZNGA could still give investors a nice little ride in 2017. The stock is now near a 52-week high, but could power higher if the company continues to deliver better than expected financial results. For more news on Zynga and other fast-moving penny stocks, please subscribe to OracleDispatch.com below.