It’s ‘Game On’ for Zynga’s Investors as Buyout Looms

A long time ago, San Francisco-based video game developer Zynga (NASDAQ:ZNGA) was mostly known for Farmville and a handful of other titles. Meanwhile, on Wall Street, ZNGA stock was sometimes thought of as a cheap way to get exposure to an up-and-coming gaming company.

The Big Dogs Threaten to Make Zynga Stock a Tad Too Exciting
Source: 360b / Shutterstock.com

In recent years, however, investors have started to take the gaming market more seriously. Billions of dollars are at stake, and the onset of Covid-19 seemingly made video games more popular than ever before.

Jump to early 2022, and even though the year is still young, there’s a lot for ZNGA stockholders to get excited about. Still, getting the share price above $10 and keeping it there has been a struggle.

There’s a lot to unpack here, so we’ll start with a brief technical analysis. After all is said and done, the evidence in favor of an investment in Zynga today will be strong, and perhaps even overwhelming.

A Closer Look at ZNGA Stock

In 2020 and then again in 2021, the buyers tried their hardest to keep ZNGA stock above that crucial $10 level. They even managed to push the stock to $12 in February 2021, but that rally didn’t last long.

The “tech wreck” of the past several months certainly didn’t make it any easier for the buyers to buoy the Zynga share price. As technology stocks tanked, some of Zynga’s investors undoubtedly gave up and dumped their shares.

That’s a shame, as a comeback was imminent. ZNGA stock found its bottom at $6 early this year before jumping to $10, where the stock stayed for much of February.

If there’s any message I’d like Zynga’s investors to hear, it’s this: resistance levels are meant to be broken, and eventually $10 will be just a stepping stone to higher price points.

All-Time Best

Just as gamers try to get high scores, it’s normal for great businesses to strive to break records in their financial reports.

Zynga actually achieved this in the company’s fourth-quarter 2021 results. Four broken records in the revenue and bookings categories immediately stand out:

  • Record Q4 2021 revenue of $695 million, up 13% year-over-year
  • The company’s best-ever quarterly bookings of $727 million, up 4%
  • Advertising-and-other category revenue of $161 million, up 37% and marking a quarterly record
  • Advertising-and-other category bookings of $171 million, up 46% and achieving an “all-time best”

Now, I’m not going to pretend that everything is perfect. The fact is, Zynga incurred a $67 million net earnings loss in 2021’s fourth quarter. Admittedly, that’s worse than the $53 million net loss from the year-earlier quarter.

In other words, there’s still room for improvement and some cost-cutting could benefit Zynga. Still, the shareholders can celebrate the company’s impressive growth in its revenue and bookings.

Good-Bye to ‘Go Shop,’ Hello to NFTs

In other news, Take-Two Interactive’s (NASDAQ:TTWO) planned acquisition of Zynga appears to be moving forward. Reportedly, the “go-shop” phase of the merger is finished, and according to Zynga’s press release, the “no-shop” phase has begun:

Zynga is now subject to “no-shop” provisions under the Agreement that limit its and its representatives’ ability to solicit alternative acquisition proposals, subject to customary ‘fiduciary out’ provisions.

This restriction on Zynga is probably a good thing. It suggests a greater commitment from Zynga, and progress in the negotiations with Take-Two Interactive.

In case all of that isn’t enough recent news, Zynga is also apparently testing the waters with non-fungible tokens (NFTs). According to InvestorPlace contributor Joel Bagole, Zynga plans to release an NFT game sometime this year.

Sorry to say it, but Zynga apparently doesn’t plan to introduce NFTs to Farmville. Nonetheless, it’s encouraging to hear that Zynga is evidently ready to enter into the potentially lucrative world of NFT gaming.

The Bottom Line

In terms of revenue and bookings, Zynga is firing on all cylinders. Hopefully, the company will make progress toward profitability soon.

At the same time, Zynga’s stakeholders should appreciate the company’s willingness to venture into NFTs. Besides, the Take-Two acquisition appears to be progressing well.

All in all, the big picture looks favorable for Zynga. In time, the buyers should finally be able to keep ZNGA stock above $10.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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