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Why Zynga Stock Climbed 12.5% in February

What happened

Shares of Zynga (NASDAQ: ZNGA) gained 12.5% last month, according to data provided by S&P Global Market Intelligence.

The maker of top mobile games, including Words With Friends and CSR Racing, reported Q4 earnings results in February that showed record revenue for the fourth quarter and the full year.

Image source: Zynga.

So what

Zynga's fourth-quarter revenue increased 52% year over year to $616 million, although investors typically prefer looking at bookings (a non-GAAP measure of revenue) when evaluating the performance of video game companies. On that basis, Zynga did somewhat better, delivering $699 million in bookings, representing growth of 61% year over year.

Zynga acquired two major studios last year: Peak and Rollic. The extra revenue from these two studios padded the company's record year, but acquisitions have been a key part of the growth strategy for several years. Excluding the impact of the acquisitions, management reported that organic revenue growth was still strong.

Now what

Zynga expects another year of growth in 2021. Guidance calls for revenue to rise 31% over 2020, with bookings expected to come in at $2.8 billion, representing an increase of 23%.

The outlook might look disappointing given the higher growth numbers reported in 2020, but investors were not expecting those stellar results to continue. At a forward price-to-earnings ratio of 27, the shares could still offer upside this year, especially if Zynga meets or exceeds its guidance.

The company just announced another acquisition. Echtra Games will extend Zynga's capabilities to cross-platform games ranging from mobile games to PCs and consoles. Zynga already has a deep pipeline of new releases in the works, but this deal positions this top gaming company to stretch its reach to other platforms.

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John Ballard owns shares of Zynga. The Motley Fool owns shares of and recommends Zynga. The Motley Fool has a disclosure policy.


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