Zynga (NASDAQ:ZNGA) might be worth looking into as a potential buy-the-dip investment. This company’s stock has dropped 32.9% over the past three months. Its RSI score has dropped to 30.1, signifying that it is currently oversold.
Zynga is a mobile gaming company that also operates its own $300-million per year mobile advertising business. It recently closed its $250-million purchase of digital advertising firm, ChartBoost. (See Zynga stock charts on TipRanks)
ChartBoost Tailwind
ChartBoost is just one of Zynga’s many big-budget acquisitions. ChartBoost’s core business is the monetization of mobile apps and websites. It currently has more than 500 advertising/app monetization customers.
ChartBoost increases Zynga’s total addressable market for advertising. The mobile advertising industry touts a projected CAGR of 32.5% from 2018 to 2026. It is expected to have a market size of $408.6 billion by 2026.
ChartBoost could eventually bump Zynga’s mobile ads business to bring in $500 million a year. Two years from now, Zynga could probably be generating $1 billion a year from advertising.
ZNGA is an affordable investment in the fast-growing mobile ads industry.
Zynga Deserves Higher Valuation
ZNGA has forward P/E valuation of only 16.2x. This is lower than Electronic Arts’ (EA) 19.3x. The relative undervaluation of Zynga is unfair. Electronic Arts (NASDAQ:EA) has zero advertising business.
The mobile segment of EA (including its subsidiary Glu Mobile (NASDAQ:GLUU)) is still not as big as Zynga’s $699-million per quarter mobile game bookings. Zynga has over 205 million monthly active players.
Zynga’s five-year revenue average growth is 24.5%. It is a high-growth stock that has affordable valuation ratios.
This company is financially healthy. The total cash position of Zynga is $1.5 billion. It has zero short-term debt, though its long-term debt is $1.32 billion.
Wall Street’s Take
The consensus among Wall Street analysts is that ZNGA is a Strong Buy, based on 12 Buy recommendations. The average Zynga price target is $12.02, implying 64.9% upside potential.
Conclusion
Zynga is more than just a mobile gaming company. It is a worthy investment because of its growing mobile advertising business.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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