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Zynga (ZNGA): Here are a few reasons to keep an eye on this stock

Shares of Zynga Inc. (NASDAQ: ZNGA) have dropped 9% since the beginning of this year. The company reported double-digit revenue growth for its most recent quarter but its bookings came in lower than expected which raised concerns over the growth prospects of the company going forward. Nevertheless, there is optimism over the stock in some quarters and here are a few reasons why the gaming company merits attention.

Engagement

Despite some choppiness, Zynga maintained healthy engagement levels during the second quarter of 2021. This was driven by Toon Blast, Toy Blast and Harry Potter: Puzzles & Spells along with strong performance in Social Casino. The company’s average mobile daily active users (DAUs) increased 87% year-over-year to 41 million in Q2, driven mainly by Toon Blast, Toy Blast and Rollic’s hyper-casual portfolio.

Towards the end of the second quarter, as pandemic-related restrictions eased and communities reopened, Zynga saw softness in its bookings. The adoption of Apple’s (NASDAQ: AAPL) privacy changes led to an increase in the cost to acquire new players which in turn caused the company to lower its user acquisition spend.

These headwinds led the company to reduce its bookings outlook for the full year of 2021 by 3% to $2.8 billion. However, experts believe these short-term challenges will slowly clear out and allow the company to move ahead on its growth path.

In fact, Zynga is already seeing improvements in its user acquisition yields along with strong engagement and monetization within its core audience, which accounts for the majority of its bookings. The company is also investing in hyper-casual games, cross-platform play and international expansion which will help increase its total addressable market and drive growth in the interactive entertainment industry.

New game releases

Zynga has a line-up of new games that are expected to drive meaningful organic growth in 2022. The company plans to launch FarmVille 3 worldwide in the fourth quarter of 2021. In addition, Star Wars: Hunters is expected to enter soft launch on mobile in select test markets in Q4. Zynga also plans to test more new titles in 2022.

Acquisitions

Zynga’s acquisition strategy has paid off well so far. Rollic’s hyper-casual game portfolio surpassed 1 billion total downloads worldwide during the quarter. The company believes there is an opportunity to turn some of Rollic’s most popular games into live service franchises and it is investing in the same.

Earlier this month, the company closed the acquisition of mobile advertising platform Chartboost, which will help it expand its advertising capabilities. Chartboost is expected to pave way for more growth opportunities and margin expansion synergies in 2022 and beyond.

Zynga has also agreed to acquire Chinese mobile game developer StarLark. This deal will add popular mobile casual golf game Golf Rival to Zynga’s portfolio and provide the company with expansion opportunities into the Chinese market.

Market opportunity

Based on data from ReportLinker, the global market for mobile gaming is estimated to reach a size of $153.5 billion by 2027, growing at a CAGR of 11.5% over the period from 2020-2027. The China market is projected to reach $48 billion by 2027. Zynga appears to have significant opportunity for growth and expansion against this backdrop.

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