Zynga (ZNGA) has carved a remarkable journey, from Facebook (FB)-centric business to leading developer and publisher of social game services.
The company is constantly expanding and exploring new markets, genres, and platforms to grow its total addressable market (TAM). The company’s revenues come from in-app purchases and advertising.
Encouraged by the company’s performance so far and its room for further growth in the future, BTIG analyst Jake Fuller initiated coverage on the stock, with a Buy rating and $10 price target. “The 2022 setup looks strong from a top-line perspective, and we like the catalyst path,” said Fuller. He added, “We are constructive on the growth outlook for the mobile gaming space and believe Zynga is well positioned to benefit.”
Fuller also noted that the company is on a clear path to doubling its business within 5-6 years, thanks to various growth opportunities. (See Analysts’ Top Stocks on TipRanks)
Fuller sees some pressures on 2022 profits as Zynga engages in high-expense marketing of new game launches. Nonetheless, the bigger picture is more appealing to the analyst. He is positive about the acquisition of mobile programmatic advertising and monetization platform Chartboost, which is expected to boost Zynga’s margins, revenues and user cross-selling.
A strong line-up of new games, which includes Farmville 3 and Star Wars Hunters, the integration of the acquired mobile developer company StarLark, contributions from the acquired mobile golf game GolfRival, and reductions in user acquisition costs are expected to be key growth catalysts for Zynga in the near-term.
IDFA Pressures Dissipating
Most importantly, the pressures from the IDFA (identification for advertisers) changes have seemingly started to let up, according to data tracking and developer checks. Incidentally, the IDFA by Apple (AAPL) is a unique tool to protect privacy. It enables advertisers to track whether a user who viewed their ad within a particular app, has subsequently visited the website that was advertised. Most importantly, this tracking is done without revealing the user’s identity.
To put it into context, personalized advertising has reached new heights, which has been possible only because of detailed targeting options from device identifiers like IDFA, making mobile advertisers dependent on them. Now, as explained above, advertising plays an important part in bringing in Zynga’s revenues. Thus, necessarily, any changes in IDFA will affect Zynga’s revenues.
In 2020, Apple introduced new privacy regulations, including removing IDFA as a default feature, and making it optional instead. This has brought in strong headwinds for gaming companies that heavily depend on advertising revenues.
However, subsequent changes have been put in place to help related industries balance these headwinds. Fuller observes that “the worst of the IDFA headwinds are behind us,” which makes him optimistic about Zynga’s prospects over the second half of 2021.
Wall Street’s Take
Analyst consensus is also optimistic about Zynga, with a Strong Buy rating based on 13 unanimous Buys. The average Zynga price target of $11.54 indicates an upside potential of 56%.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
