Zynga (NASDAQ: ZNGA) Looks In Great Shape To End The Year

A 4.4% jump in yesterday’s session was enough to make shares of social game developer Zynga (NASDAQ: ZNGA) among the best performing of US equities. Though still a 10% move away from their multi-year highs hit back in August, shares are looking good value to be above them soon enough.

Yesterday morning, JPMorgan was out with a bullish upgrade to the San Francisco-based company’s stock, moving them to Overweight. They also slapped a fresh $12 price target onto the shares which suggest an upside of 25% even from last night’s closing price. In a note to clients, analyst Alexia Quadrani pointed out how "in the context of more limited 2021 organic growth, we believe stock performance next year will be driven by execution across core franchises and investor enthusiasm for the new game pipeline – factors that we believe favor ZNGA." They also believe there are "significant long-term opportunities that we do not see as fully reflected in current off-peak multiples."

Best Of The Bunch

While overall video game names face a tougher 2021 as consumers start to reallocate time and money to areas that were closed for much of 2020, such as travel, restaurants, and movies, Zynga is still well-positioned as among the best of the bunch. It has a higher economy of scale as well as a broader portfolio of games.

Yesterday’s good news built on Tuesday’s, when Wells Fargo was out with an upgrade to shares whilst maintaining their $12.50 price target. They honed in on the 25% dip that shares experienced from July through mid-November, noting how the pullback now "appears overdone", making Zynga "look inexpensive relative to growth."

This is all solid momentum for the company to bring with it into the 6th year of a stunning rally. After a spectacular crash following their much-hyped 2011 IPO, it was only in 2016 that shares were able to put in a bottom and get going again. But what a ride since then. The stock is up more than 400% and shows no signs of slowing down, with the most recent earnings report in November showing revenue up 45% year on year.

Multi-Year Highs

Many of their key operating metrics such as mobile daily active users and online pay revenue also hit record numbers in that report. As part of a general increase in their full-year forecast, CEO Frank Gibeau told investors that "execution of our multi-year growth strategy has driven our tremendous results to date and generated positive momentum across our live services and overall business".

Indeed it has, and it makes sense why Zynga was recently included on Cowen’s 2021 best ideas list. They noted how the company has made a mark as one of "the most consistent companies in the mobile gaming vertical over the last few years”, with steady growth setting it up for long term success.

In a similar vein, earlier this week the company raised $750 million through the issuance of 0% convertible senior unsecured notes. This bulks up their war chest considerably and puts them in good shape to make 2021 just as, if not more, successful than 2020.