‘s better-than-expected first-quarter earnings and its $250 million acquisition of an ad-tech company are reason enough to buy the stock, according to BofA Securities.
Analyst Ryan Gee upgraded his rating on the mobile videogame maker’s stock to Buy from Hold on Thursday, and lifted his target price to $13.50 from $12. Shares of Zynga (ticker: ZNGA) jumped 5.6% to close at $10.71 on Thursday.
In a note to clients, Gee described Zynga’s intention to acquire San Francisco-based Chartboost as a shift in the company’s strategy, to become a platform that sells mobile advertising—inside games. Currently Zynga is known for publishing mobile videogames. The analyst predicted that this is the first step in a yearslong plan to transform the business into a mobile ad powerhouse.
Chartboost has developed a mobile self-serve advertising platform that reaches more than 700 million monthly users. Beyond access to the company’s network and technology, buying the platform will save Zynga $20 million to $30 million in 2022, Gee said.
Gee wrote in the note that Zynga’s turn toward the higher-growth, higher-margin business of ad technology is moving faster than he expected and makes the stock look especially favorable.
The higher price target is deserved, Gee said, because Zynga should be valued closer to an ad-tech company, not a videogame publisher. He values Zynga stock at 12 to 14 times 2022 adjusted profit. In comparison, ad-tech companies are worth more than 40 times 2022 adjusted profit, Gee said.
Zynga is a much-liked stock on Wall Street. Eighteen analysts rate shares a Buy, one has a Hold, and there is a lone Sell rating. The average target price is $13.27, which implies upside of about 25%. Barron’s took a positive view of the stock in October, arguing that it was well-positioned to profit from the billions-strong audience for mobile games.
Zynga reported better-than-expected first-quarter earnings on Wednesday. Chief Executive
credited the company’s games made by its recent Rollic acquisition and its Harry Potter title, among other things.
Gee said the company’s near-term prospects underwhelmed him, hurt by weaker-than expected profit in the second quarter and the delay of a title launch. Next year, however, the company is expected to benefit from scaling its games and ads.
Zynga stock has advanced about 40% in the past year, while the
index has climbed 46%.
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