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Why Zynga Stock Jumped 21.4% in May

By Keith Noonan - Jun 3, 2020 at 7:30AM

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The late-month rally for the video game company's stock is a bit of a mystery.

What happened

Shares of Zynga (ZNGA) climbed 21.4% in May, according to data from S&P Global Market Intelligence . The stock climbed ahead of the company's first-quarter release on May 6, then dipped after results were published. However, shares went on to close out the month with big gains.  

^SPX Chart

Data by YCharts.

Zynga's first-quarter sales and earnings topped the market's expectations, but the company's earnings report also arrived with declining user-engagement figures that seem to have briefly weakened bullish sentiment on the stock.  It's not entirely clear why the company's share price jumped at the end of May, but there are a couple of likely explanations. 

So what

Zynga's share price largely climbed in conjunction with market momentum during the month, but it saw a pronounced uptrend begin on May 28, one that spurred double-digit gains. It's possible that the company being featured on a May 27 episode of CNBC's Mad Money program resulted in increased interest in the stock as host Jim Cramer made positive comments about its prospects and the the overall outlook for the video game industry. However, the stock's 13% jump on May 29 may have been related to a major acquisition that would be announced a few days later. 

A person holding a yellow mobile phone with both hands.

Image source: Getty Images.

Now what

Zynga stock has continued to climb in June after the company disclosed its acquisition of Turkish video game developer Peak in a $1.8 billion deal. Peak is responsible for games including Toon Blast and Toy Blast, and Zynga anticipates that the integration of the new studio's titles will increase its daily average user (DAU) base by more than 60%.

Management also updated second quarter and full-year guidance. They now expect second-quarter revenue of $430 million (up from the previous target of $400 million). The full-year revenue outlook also increased from $1.65 billion to $1.69 billion.

Zynga stock is valued at roughly 33 times forward earnings estimates and 6 times trailing 12-month revenue.

Keith Noonan owns shares of Zynga. The Motley Fool owns shares of and recommends Zynga. The Motley Fool has a disclosure policy.

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