Why Zynga, Inc. Shares Skyrocketed

Is Zynga's jump meaningful? Or just another movement?

Jan 31, 2014 at 5:04PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our thesis.

What: Shares of Zynga, (NASDAQ:ZNGA) rose nearly 24% Friday after the company revealed better-than-expected fourth-quarter results, a new acquisition, and plans to reduce its workforce by 15%.

So what: Quarterly sales fell 43.3% year over year, to $176.4 million, which translated to an adjusted net loss of $0.03 per share. By contrast, analysts were expecting Zynga to post a wider loss of $0.04 per share on lower sales of $138.42 million. Meanwhile, Zynga's fourth-quarter bookings -- a key measure for in-game virtual goods purchases -- also fell 44%, $147 million.

Zynga also announced it will acquire mobile game developer NaturalMotion for approximately $527 million, including $391 million in cash and roughly 39.8 million in shares of Zynga stock. The transaction is expected to be accretive to Zynga's non-GAAP earnings, and generate bookings of $70 to $80 million in 2014. 

Going forward, Zynga expects revenue in the current quarter to be $155 million to $165 million, with an adjusted net loss of $0.01 per share on bookings of $138 million to $148 million. Analysts were modeling a first quarter loss of $0.02 per share on sales of $147.1 million. Better yet -- and thanks largely to the acquisition -- full-year 2014 bookings are expected to be in the range of $760 to $810 million, or an improvement over Zynga's 2013 bookings of $716 million.

Now what: Zynga also claims that part of its strategic rationale for the acquisition is that it "accelerates mobile growth" -- an interesting assertion considering Q4 mobile bookings actually fell by 5.5%, to $51 million during the same period last year. Bookings did increase sequentially, however, from $46 million in the third quarter.

Even so, I can't help but be skeptical considering Zynga's acquisition history. Remember, Zynga acquired Draw Something creator OMGPOP in early 2012 for $180 million, only to take a hefty impairment charge after shuttering its doors less than a year later.

In the end, given the risk of another bad acquisition and the fact that Zynga's bookings are still coming in below GAAP revenue, I'm perfectly happy remaining on the sidelines.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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