Please ensure Javascript is enabled for purposes of website accessibility

Despite Market Correction, Zynga Still Rose 12% in February

By Jon Quast - Mar 6, 2020 at 1:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors cheered strong bookings growth in 2019.

What happened

February was a terrible month for stocks in general. But shares of mobile-game company Zynga (ZNGA -2.04%) were still up 11.5%, according to data provided by S&P Global Market Intelligence

Zynga's stock rose steadily for much of February, after it kicked the month off with a strong earnings report. It did give back some gains as the market sold off, but it didn't decline as much as the major indices. Perhaps investors are mulling over the possibility that as people stay home to avoid the coronavirus, gaming activity will increase.

thumbs up

Image source: Getty Images.

So what

Zynga distinguishes between revenue and bookings. Revenue from in-game purchases is recognized over the useful period of those items. Bookings, by contrast, measures those purchases up front and can provide a more current picture of how the business is doing. In the fourth quarter of 2019, Zynga's online game bookings rose a whopping 80% year over year to $354 million.

A full 79% of Zynga's 2019 revenue came from online gaming, so it's not surprising to see investors cheer this robust bookings growth. Just for perspective, in 2018, Zynga's bookings grew only 14%. But 2019 saw a key strategy shift. Zynga focused on live services -- constantly updating "forever franchises." By keeping people hooked and engaged with game updates, it's been able to better monetize its properties. Bookings were up 61% in 2019, showing the strategy is paying off.

However, investors shouldn't expect this level of growth in 2020. Zynga is guiding for 12% bookings growth in the coming fiscal year. Even still, this guidance was positive enough to help investors overlook the bottom-line guidance. Zynga's guidance for 2020 includes a $130 million net loss as it spends heavily to market its products.

Now what

Zynga's climb has continued into March, as investors flock toward stocks that will benefit as people stay home because of the coronavirus. These include video streaming, telemedicine, and delivery services. Mobile gaming with Zynga is also seen as a great business that people will use as they sit around and wait the health crisis out. 

If you need a reason to invest in Zynga, I wouldn't use a COVID-19-related thesis. It's true Zynga's business could benefit from more people staying home, but that would be a short-term boost only. The top stocks in the market today are the ones worth holding for the long term, after the present health scare is over.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Zynga Inc. Stock Quote
Zynga Inc.
$8.18 (-2.04%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.