Recent acquisitions are positioning ZNGA as a solid growth play
Zynga Inc. (NASDAQ:ZNGA) is an American game developer responsible for releasing the incredibly popular Facebook (FB) game “FarmVille.” Zynga’s games are available in more than 150 countries and can be played across multiple social platforms and mobile devices all over the world.
On October 2, ZNGA announced its acquisition of Rollic. The acquisition was for 80% of the Rollic business, but Zynga clarified its plans to acquire the remainder of the company over the next three years. Then, yesterday, ZNGA announced that its brand new subsidiary, Rollic, had completed the acquisition of Onnect for $6 million. Onnect is a connection-based pair-matching puzzle game.
Suffice it to say that it has been a busy fourth quarter so far for Zynga. The stock is up almost 42% in 2020. However, the shares remain off their Aug. 6 annual high of $10.69, with shorter-term resistance coming from ZNGA's 50-day moving average.
That being said, now looks like an opportune time to get in on ZNGA's next move with options. The equity’s Schaeffer’s Volatility Index (SVI) of 41% stands in the low 13th percentile of its annual range. This means options players are pricing in relatively low volatility expectations at the moment.
One word of caution for prospective options traders though. Zynga stock currently ranks an incredibly low on the Schaeffer's Volatility Scorecard (SVS), with a score of just seven out of 100. This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. Low SVS readings indicate consistently realized lower volatility than its options have priced in -- pointing to ZNGA being a potential premium-selling candidate, rather than a premium-buying candidate.
From a fundamental point of view, Zynga stock is displaying a lot the positive characteristics that investors should want to see from growth stocks. Zynga has added more than $1 billion in revenue since generating $741 million in 2016 for a revenue growth of approximately 138%. It’s important to note that Zynga has taken a net loss of $380 million in the past 12 months, but this is the result of its continued growth and expansion efforts. Ahead of 2020, Zynga had previously reported small net profits each year.
Zynga stock also has a forward price-earnings ratio of 33.22 and a decent balance sheet. As of its most recent quarter, Zynga had $755 million in cash and $733 million in total debt.
Overall, Zynga’s revenue growth rate suggests that ZNGA stock price will likely mirror the incredible growth of the company’s revenue. Zynga’s recent acquisitions are also clear indications of the company’s ambitions for continued growth, as Zynga continues to look for ways to scale up.