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Zynga (ZNGA) Posts Earnings in Q4 on Strong Top-Line Growth

Zacks

Zynga Inc. ZNGA reported fourth-quarter 2017 GAAP earnings of 1 cent per share against a loss of 4 cents in the year-ago quarter.

The Zacks Consensus Estimate of earnings was pegged at 2 cents.

Revenues increased 22.4% year over year to $233.3 million. The top-line performance was strongest since first-quarter 2013, primarily driven by the successful launch of Words With Friends 2, growing live services and robust performance from CSR2 and Zynga Poker.

Moreover, partial month contribution from Peak Games’ casual card game studio, which was acquired in the fourth quarter, also drove the top line.


Online game revenues (74.2% of revenues) improved 23.5% year over year to$173.1 million. Advertising revenues (25.8% of revenues) increased 19.4% from the year-ago quarter to $60.2 million.

Bookings were $223.8 million, up 11% from the year-ago quarter. Mobile bookings increased almost 18% to $197 million. Advertising bookings were up 20.6% to $59.9 million.

Zynga Inc. Price, Consensus and EPS Surprise

Average Daily Active Users (DAUs) increased 18% on a year-over-year basis to 22 million. Average Monthly Active Users (MAUs) surged 37% from the year-ago quarter to 86 million.

Average daily bookings per average DAU declined 6% to $0.113. Average monthly unique users (MUUs) and average monthly unique payers (MUPs) were down 12% and 4%, respectively. Payer conversion increased to 2.4%, up from 2.2% in the year-ago quarter.

2017 at a Glance

In 2017, revenues increased 16.2% year over year to $861.4 million. Bookings increased 13.2% to $853.8 million.

Mobile revenues increased 29% year over year, while mobile bookings were up 23% from the year-ago quarter. Mobile revenues represented 86% of revenues, up from 77% in 2016. Mobile bookings represented 87% of total bookings, up from 80% in 2016.

Mobile online game user pay revenues were up 36% year over year and mobile user pay bookings were up 28% from the year-ago quarter.

Mobile User Base Expands

Mobile revenues surged 32% year over year to $203.6 million. Mobile Daily Active DAU) base increased 24% year over year to 20 million, driven primarily by Solitaire and Zynga Poker.

Moreover, mobile user pay revenues increased 31% year over year. Mobile user pay bookings were up 12% from the year-ago quarter.

Launched in November 2017, Words With Friends 2 has received positive response from gamers. Mobile revenues increased 19% year over year, while mobile bookings surged 28%.

Revenues from CSR2 game surged 90% year over year and bookings were up 27% from the year-ago quarter. During the quarter, the company launched CSR2’s Augmented Reality (AR) mode supported by Apple’s AAPL ARkit development platform.

Mobile revenues from Zynga Poker were up 44% year over year and mobile bookings increased 38% from the year-ago quarter, driven by improved player engagement with popular features such as Challenges and Leagues. However, Slots mobile revenues declined 12% year over year, while mobile bookings were down 8% on a year-over-year basis.

Operating Details

Non-GAAP total cost & expenses increased 2.2% year over year to $129 million.

Reported sales & marketing (S&M) and general & administrative (G&A) expenses surged 28.6% and 67.6%, respectively. However, research & development (R&D) expenses plunged 33.7% from the year-ago quarter.

Adjusted EBITDA was $46.5 million, significantly up from $10.6 million reported in the year-ago quarter.

Non-GAAP operating income soared 62.3% from the year-ago quarter to $104.2 million.

Guidance

For first-quarter 2018, Zynga projects revenues and bookings of $200 million and $210 million, respectively. The Zacks Consensus Estimate for revenues is pegged at $227.2 million.

Advertising revenues are expected to grow year over year. Management expects the mobile advertising market to continue to be highly competitive and price sensitive. Moreover, Zynga expects Dawn of Titans bookings to decline from the year-ago quarter.

Gross margin is expected to be flat year over year. Operating expenses are projected to increase year-over-year, primarily driven by higher marketing spend on the company’s live services and higher G&A expenses, offset by R&D cost.

Adjusted EBITDA is projected at $20 million, while net loss is expected to be $5 million.

Zynga expects 2018 results to be driven by robust performance from its live services and evergreen franchises. Management expects moderate growth in revenues and bookings driven by low double-digit growth in mobile bookings.

Additional contribution from recently acquired Peak Games’ casual card game studio is expected to offset decline in older mobile games.

Moreover, live services are anticipated to deliver more than 95% of revenues and bookings.

Management forecasts gross margin similar to 2017 level. Operating expenses are anticipated to grow low single-digit, primarily due to continued investments in live services, new game development and emerging mobile technologies.

Operating cash flow is projected to grow on a year-over-year basis.

Zacks Rank & Stocks to Consider

Zynga carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader sector are Broadcom AVGO and Advanced Semiconductor Engineering ASX. Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Broadcom and Advanced Semiconductor Engineering is projected at 13.75% and 7.88%, respectively.

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