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Zynga (ZNGA) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

Zynga ZNGA is set to report third-quarter 2019 results on Oct 30.

The company expects third-quarter revenues to be $325 million, up 39% year over year.

The Zacks Consensus Estimate for revenues is pegged at $385.2 million, indicating an increase of 54.8% from the year-ago reported figure.

Moreover, the consensus mark for earnings has remained steady at 5 cents per share over the past seven days. The figure indicates growth of 66.67% from the year-ago reported figure.

For the to-be-reported quarter, the consensus mark for daily average users (DAU) and monthly average users (MAU) is pegged at 20.31 million and 70 million, respectively, indicating a decrease of 16.1% and 21.3% from the year-ago reported figure.

Additionally, the consensus mark for monthly unique users (MUU) is pegged at 51 million, indicating a decrease of 7.3% year over year. The consensus estimate for monthly unique payers (MUP) is pegged at 1.1 million, indicating 6% year-over-year decline.

Zynga’s GAAP revenues increased 41% year over year to $306 million in second-quarter fiscal 2019. Bookings increased 61% year over year to $376 million in the same quarter.

Zynga’s average DAUs were 21 million in second-quarter 2019 which remained flat on a year-over-year basis. Additionally, the company’s MAUs were 70 million, down 10.3% year over year.

Notably, the company’s earnings missed the Zacks Consensus Estimate in the trailing four quarters, the average negative surprise being 148.75%.

Zynga Inc. Price and EPS Surprise

Zynga Inc. Price and EPS Surprise

Zynga Inc. price-eps-surprise | Zynga Inc. Quote

Factors Likely to Influence Q3 Results

Zynga’s strength in franchises, exciting content and new releases make the platform attractive to users.

Zynga’s mobile live services supported by strong popularity of five franchises - CSR Racing, Words With Friends, Zynga Poker, Empires & Puzzles and Merge Dragons! are expected to have contributed to top-line growth in the soon-to-be-reported quarter.

Additionally, portfolio strength in popular games like Words With Friends and CSR2 is expected to have benefited Zynga’s net bookings in the to-be reported quarter. Notably, net bookings are expected to be $380 million, up 53% year over year in third-quarter 2019 as guided by the company. The Zacks Consensus Estimate for bookings is pegged at $383 million.

Zynga announced expansion pack of Empires & Puzzles and made feature addition called Showdown expanding the player versus player modes inside CSR2 during the third quarter.

Moreover, the company’s partnership with Snap SNAP to introduce games such as Tiny Royale exclusively on Snapchat platform is likely to have aided in audience growth and platform expansion.  

Tremendous initial response from soft launches of games such as Farmville 3 and Merger Magic! from Gram Games and Puzzle Combat from Small Giant Games are expected to have driven user engagement levels and active player accounts in the third quarter.

Further, Zynga’s strength in Social Slots portfolio from games such as Hit It Rich! Slots and Game of Thrones Social Slots Casino is expected to have positively impacted the top line.

Notably, the company announced data security measures to protect player information especially for games such as Draw Something and Words With Friends during the to-be reported quarter. This is likely to have boosted user confidence and engagement levels.

However, decline in older mobile and web games users and Zynga Poker users is expected to have been a dampener.

Moreover, increase in royalties on licensed IPs, higher R&D and marketing expenses, as guided by the management, are expected to hurt profits.

What Our Model Says

According to the Zacks model, the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — increases the odds of a positive earnings surprise.

Zynga has an Earnings ESP of 0.00% and a Zacks Rank #3, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming release.

Columbia Sportswear Company COLM has an Earnings ESP of +0.65% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

MSG Networks Inc. MSGN has an Earnings ESP of +6.9% and a Zacks Rank #2.

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