Is Zynga a Buy Under $8?

NASDAQ: ZNGA | Zynga Inc. -  News, Ratings, and Charts

ZNGA – Social gaming services provider Zynga Inc. (ZNGA) recently acquired two companies as part of its long-term growth strategy. However, considering the company’s low-profit margins and its stock’s premium valuation, will the stock be a good addition to one’s portfolio? Read on to learn more.

Zynga Inc. (ZNGA) is a global leader in interactive entertainment. With a reach in more than 175 countries and regions globally, it has a diversified portfolio of iconic gaming franchises that have been downloaded more than four billion times on mobile phones. 

The San Francisco, Calif.-based company gained popularity during an increase in online social gaming as the COVID-19 pandemic fostered remote lifestyles.

However, closing yesterday’s trading session at $7.65, the stock is currently trading 37.9% below its 52-week high of $12.3, which it hit on February 19, 2021. In addition, the stock has declined 30.4% in price over the past six months and 22.5% year-to-date.

Click here to check out our Video Game Industry Report for 2021

Here is what could influence ZNGA’s performance in the upcoming months:

Strategic Acquisitions

ZNGA has been striving to expand its operations through multiple acquisitions over the past months. This month, it completed the acquisition of StarLark, the creator of Golf Rival–the world’s fastest-growing and second-largest mobile golf game–from Betta Games for  $525 million in cash and stock. With the acquisition, ZNGA aims to expand its international presence by establishing a new China-based studio with access to the region’s creative talent pool.

In August, ZNGA acquired 100% of Chartboost for approximately $250 million in cash. This deal combines to form a complete, next-generation platform for mobile advertising leadership, with high-quality content, direct player relationships, massive reach, and full-stack advertising technology that can be used across ZNGA’s game portfolio and Chartboost’s advertising partners.

Poor Profitability

ZNGA’s trailing-12-months 0.46% CAPEX/Sales is 88% lower than the 3.8% industry average. Also, its ROA and net income margin are negative 2.9% and 6.8%, respectively. Furthermore, its $316.5 million trailing-12-months cash from operations is 20.1% lower than the $395.93 million industry average.

Premium Valuation

In terms of the non-GAAP forward PEG ratio, the stock is currently trading at 3.07x, which is 116.6% higher than the 1.42x industry average. Also, its 2.77 forward EV/Sales multiple  is 10.6% higher than the 2.51 industry average. Furthermore, ZNGA’s 2.82x forward Price/Sales is 64.6% higher than the 1.71x industry average.

The stock’s 24.56 forward Price/Cash Flow multiple is 155.2% higher than the 9.62 industry average.

Consensus Rating and Price Target Indicate Potential Upside

All  11 Wall Street analysts that rated ZNGA rated it Buy. Closing yesterday’s trading session at $ 7.65, the $10.86, 12-month median price target indicates a 42% potential upside. The price targets range from a low of $10 to a high of $13.

Unfavorable POWR Ratings

ZNGA has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ZNGA has a C grade for Quality and Momentum. The company’s poor profitability is consistent with its Quality grade. In addition, the stock is currently trading below its $7.71 and $9.65 respective 50-day and 200-day moving averages, which is in sync with the Momentum grade.

Of the 23 stocks in the C-rated Entertainment – Toys & Video Games industry, ZNGA is ranked #17.

Beyond what I have stated above, we have rated ZNGA for Sentiment, Growth, Stability, and Value. Get all ZNGA ratings here.

Bottom Line

Despite being a prominent player in the video gaming industry, ZNGA’s weak profitability is a concern. This, coupled with its higher-than-industry valuation, could lead to a price decline. So, while the company is well-positioned to grow substantially based on its acquisition synergies, we think investors should wait until its fundamentals stabilize before investing in the stock.

How Does Zynga Inc. (ZNGA) Stack Up Against its Peers?

While ZNGA has an overall POWR Rating of C, one  might want to consider looking at its industry peers, DoubleDown Interactive co. Ltd. (DDI), Electronic Arts Inc. (EA), and Sega Sammy Holdings Inc. (SGAMY), having an overall B (Buy) rating.

Click here to check out our Video Game Industry Report for 2021

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year


ZNGA shares were trading at $7.63 per share on Wednesday morning, down $0.02 (-0.26%). Year-to-date, ZNGA has declined -22.70%, versus a 25.90% rise in the benchmark S&P 500 index during the same period.


About the Author: Pragya Pandey


Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
ZNGAGet RatingGet RatingGet Rating
DDIGet RatingGet RatingGet Rating
EAGet RatingGet RatingGet Rating
SGAMYGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


How Much Resistance @ 6,000 for Stocks?

The post-election rally was an exciting burst for the stock market. With that the S&P 500 (SPY) made new highs just above 6,000. Since then stocks have struggled begging the question: what happens next? 44 year investing veteran Steve Reitmeister provides the answers along with his top 11 stocks to buy now.

3 Streaming Stocks Benefiting from Cord-Cutting Trends

As streaming continues to dominate the digital entertainment landscape, the global streaming market presents a lucrative investment opportunity. So, it could be ideal to invest in fundamentally solid streaming stocks Netflix (NFLX), Walt Disney (DIS), and Roku (ROKU). Read further...

3 Gold Stocks to Buy as Safe-Haven Demand Grows

Gold is a stable investment now due to its role as a safe-haven asset during economic uncertainty, rising demand, industrial use, and growth, bolstered by central bank purchases and interest rate cuts. Therefore, investors should consider investing in top gold stocks such as Newmont (NEM), Barrick Gold (GOLD), and Agnico Eagle Mines (AEM). Read more...

3 AI Stocks Transforming Industries and Driving Future Growth

With rapid digitalization, rapid adoption, and development, as well as surging demand, the AI market is on the rise. Amid this backdrop, investors could buy fundamentally solid AI stocks NVIDIA Corporation (NVDA), Microsoft (MSFT), and Meta Platforms (META) poised for substantial gains. Continue reading...

Does Trump Change Stock Market Outlook?

The rally of the S&P 500 (SPY) after the election gives a sense that investors are happy that Trump was elected. But perhaps there is more to this story than meets the eye. That’s why Steve Reitmeister shares his updated market outlook taking into account the pros and cons of Trumps proposed new policies. This comes with a preview of his top 11 stocks to buy now.

Read More Stories

More Zynga Inc. - (ZNGA) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All ZNGA News