What happened

Shares of Zynga (NASDAQ:ZNGA) fell 18.3% last month, according to data from S&P Global Market Intelligence. The stock initially surged on strong earnings results for the third quarter, but as the month progressed, the shares fell along with digital ad stocks, such as Meta Platforms, Snap, and Twitter

The consumer price index rose 6.2% in October. This move caused bond yields to rise, which triggered a selloff in growth stocks. Higher inflation may raise concerns about the health of the economy and, therefore, the digital ad market, which contributed to Zynga's third-quarter results.

ZNGA Chart

ZNGA data by YCharts

So what

Earlier in the month, Zynga reported record revenue and bookings driven by excellent performance from in-game advertising across its hypercasual mobile-game portfolio. Revenue increased by 40% year over year to $705 million, with bookings up 6% to $668 million. 

Advertising revenue reached 19% of total revenue, up from 13% in the year-ago quarter. This performance follows the 2020 acquisition of Rollic, a leading maker of hypercasual games, and positions Zynga well to continue expanding its advertising business. 

A commuter on a train playing a mobile game.

Image source: Getty Images.

Now what

Whatever the market thinks of Zynga's near-term prospects, management seemed optimistic during the Q3 earnings call about the way business was going.

Zynga has several releases coming in the fourth quarter, including additional updates for existing titles. It recently launched FarmVille 3, one of the company's most popular franchises, and is also looking to grow its first cross-platform title, Star Wars: Hunters, in 2022. 

Management raised full-year guidance and expects revenue to finish 2021 at $2.78 billion, up 41% over 2020. Zynga said its integration of Chartboost, which it acquired this year for $250 million, is well under way. This acquisition gives Zynga its own in-house advertising tech platform, which management believes gives it a competitive advantage in acquiring highly engaged players that it can monetize over the long term with in-game ads.

In all, investors can look at the selloff last month as a good buying opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.