Zynga (ZNGA) stock may be holding steady today, but that doesn’t mean shares in the mobile-focused game developer will continue to deliver a middling performance from here.
Shares could see a boost in the coming months, if just one of two possible catalysts plays out. First, the takeover catalyst. Recent headlines suggest that one of the larger names in the video game space may be interested in acquiring this smaller rival.
What if takeover talks fail to lead to a deal? Zynga’s acquisition of mobile ad and monetization company Chartboost could help minimize the impact of Apple’s (AAPL) change to its Identifier for Advertisers (IDFA) policy.
While already valued at around 25.5x estimated 2021 earnings, there may yet be room for investor enthusiasm to rise over the next year. (See Zynga stock chart on TipRanks)
ZNGA Stock and Takeover Rumors
So far this year, there have been two waves of takeover rumors surrounding ZNGA stock. The first came back in February, following EA’s (EA) announced acquisition of Glu Mobile. The rumor mill picked up again in July, with speculation about a larger rival acquiring the company brewing.
Companies that have been floated as possible acquirers include Activision Blizzard (ATVI) and Take-Two Interactive (TTWO). Some commentators have even speculated Microsoft (MSFT) may be interested in purchasing the company.
A takeover of Zynga could pay off in many ways for a would-be buyer. For starters, folding it into a larger operation would likely wring out material cost savings. Additionally, acquiring it could help boost revenue growth for a more mature, slower-growing video game company.
However, getting bought out at a premium isn’t the only way investors could profit from ZNGA stock.
Another Path for Shares to Rally
As discussed above, there’s an alternate catalyst that could lead to increased investor enthusiasm for the stock. That would be further indication that Apple’s IDFA policy changes won’t have a material impact on future results.
Back in April, Apple gave its users the ability to opt-out of IDFA, which is used for targeted advertising. This could possibly result in major revenue declines for mobile app developers, including mobile developers like Zynga.
However, the company’s pending acquisition of mobile ad monetization company Chartboost could minimize the impact of this change. This could mean that its revenue and earnings growth remain on track, which in turn, may give market participants reason to re-assess the valuation of ZNGA stock.
Zynga shares are by no means cheap. Its valuation is in line with established video game companies like EA as well as mobile-focused names like SciPlay (SCPL), both of which trade at lower price-to-earnings (P/E) ratios. Yet given Zynga’s higher levels of projected EPS growth in the coming year (18.45% in 2022), it may have some room for multiple expansion.
Wall Street’s Take
According to TipRanks, ZNGA stock has a consensus rating of Strong Buy. Out of nine analysts covering the stock, nine rate it a Buy, zero analysts rate it a Hold, and zero analysts rate it a Sell.
The average Zynga price target today is $13.89 per share, implying around 42% in upside from today’s prices. (See Zynga stock analysis on TipRanks)
Bottom Line: Zynga Has Two Solid Catalysts in Play
If a bonafide deal comes out of recent takeover rumors, we could see Zynga receive an offer at a substantial premium to today’s prices. However, that’s not the only catalyst for Zynga. Another one, the pending purchase of Chartboost, could help mitigate the impact of Apple’s IDFA policy changes.
With two ways to win and upcoming earnings possibly providing further indication it’s moving in the right direction, sentiment among investors for ZNGA stock could be set to improve in the months ahead.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
