So far in 2021, growth stocks can't seem to do anything to please investors. But Zynga (ZNGA) has done a better job than most, as the mobile game maker delivered better-than-expected earnings results for the first quarter and raised full-year guidance. The stock is up 11% year to date, but may have further upside with several catalysts on the horizon.
CEO Frank Gibeau provided further insights about current business trends and future opportunities during the first-quarter earnings call.
Zynga delivers 68% revenue growth in Q1
Zynga is at an advantage compared to many other video game stocks because players don't have to be stuck at home for the company to maintain its 2020 momentum. If a player really loves a certain mobile game, they can take it with them. That's the beauty of Zynga's business, where it provides always-on entertainment in your pocket.
This strength was on full display in the first quarter. Players were engaged and spending money on in-app purchases, which drove total revenue up 68% year over year, reaching $680 million. Zynga said its social slots games generated record quarterly revenue and bookings, led by Hit It Rich! Slots, which originally launched in 2013.
Zynga also reported that recent game launches are starting to drive revenue growth too, most notably Harry Potter: Puzzles & Spells, which launched last year. "By delivering a steady cadence of bold beats, we are driving strong play engagement and monetization and are seeing these positive trends continue even as more countries begin to reopen," Gibeau said on the Q1 earnings call.
Expect more growth in this high-margin segment
Zynga is paying $250 million to acquire Chartboost, a leading advertising platform that uses machine learning technology to help developers monetize their apps. It has a wide network of developers that extends beyond mobile games and could position Zynga to further grow its lucrative ad business. The deal is expected to close in the third quarter.
Advertising revenue grew 108% year over year in the first quarter and comprised 18% of Zynga's total revenue. That's up from 15% in the year-ago quarter.
The rationale for buying Chartboost is to enhance Zynga's data capabilities to grow its ad business for mobile games. However, the opportunity is there for Zynga to leverage Chartboost's data to expand in the broader mobile ad market, which is growing very fast. eMarketer estimates mobile ad spending will nearly double to $174 billion by 2024.
During the call, Gibeau explained that Chartboost not only serves Zynga's advertising needs but "the broader mobile ecosystem," hinting at the long-term growth potential.
Raising guidance for 2021
Zynga reported that organic revenue, excluding the effect of acquisitions, should grow at a low double-digit rate through 2022. As for 2021, Zynga has more new releases in the pipeline, including FarmVille 3, to maintain near-term momentum.
Based on the strong start in Q1, Zynga raised its full-year 2021 guidance for revenue to $2.7 billion, representing growth of 37% year over year. Bookings (a non-GAAP measure of revenue) should be up 28% year over year to $2.9 billion. The company expects a net loss of $135 million, an improvement over a net loss of $429 million in 2020.
Zynga reported progress on its growth initiatives in hyper-casual games, cross-platform play, international expansion, and advertising growth. Gibeau said all these initiatives "have the ability to meaningfully increase Zynga's total addressable market and capabilities to further grow our business."