Zynga Acquires Merge Dragons! Developer, Updates Q2 Outlook

Zynga (NASDAQ:ZNGA) recently expanded its gaming portfolio with the acquisition of privately-held mobile game developer Gram Games for $250 million in cash.

The company also updated second-quarter 2018 guidance. The buyout will be dilutive to its profitability but will add to bookings in the second quarter.

Zynga now anticipates reporting GAAP net loss of couple of cents in the second quarter compared with previous guidance of breakeven. Adjusted EBITDA is now projected to $19 million down from previous guidance of $27 million. However, non-GAAP bookings will improve by $10 million to $228 million.

The company’s shares increased 3.4% to close at $4.32 on May 30. Shares have returned 8.1% year to date, much better than the industry’s gain of 1.9%.

Acquisition to Expand Zynga’s Active User Base

Gram Games is well-known for games like Merge Dragons! and 1010!. Merge Dragons! has become one of the Top 50 Grossing Game in the U.S. Apple (NASDAQ:AAPL) App Store within a short-span of its release.

Zynga stated nine games from Gram Games have collectively been downloaded more than 170 million times by players globally. The acquisition is expected to boost the company’s mobile daily active user base (DAU) by 3 million and also its gaming portfolio for 2019.

The company benefits from the surge in mobile gaming audience. Mobile contributes a significant portion — almost 88% — to the top line. Mobile average DAUs increased 24% year over year to 23 million (90% of total DAUs) in the last-reported quarter. Mobile bookings and revenues increased 10% and 13%, respectively, on a year-over-year basis.

Moreover, the acquisition of Peak Games strengthened the company’s casual card game portfolio with the addition of popular mobile card games such as Spades Plus and Gin Rummy Plus. The addition of popular games like Merge Dragons! and 1010! will further bolster Zynga’s top-line growth in the long haul.

Zacks Rank & Stocks to Consider

Currently, Zynga carries a Zacks Rank #3 (Hold).

Melco Resorts & Entertainment (NASDAQ:MLCO) and AMC Networks (NASDAQ:AMCX) are stocks worth considering in the broader Consumer Discretionary sector. While Melco Resorts sports a Zacks Rank #1 (Strong Buy), AMC Networks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Melco Resorts and AMC is currently pegged at 23.67% and 7.68%, respectively.

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