With shares of Zynga (NASDAQ:ZNGA) trading around $3, is ZNGA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Zynga is a provider of social game services with 240 million average monthly active users over 175 countries. The company develops, markets, and operates online social games as live services played over the Internet and on social networking sites and mobile platforms. Zynga's games are accessible on Facebook, as well as other social networks and mobile platforms, to players globally — wherever and whenever they want. It operates its games as live services, and they are all free to play. However, it does generate revenue through the in-game sale of virtual goods and advertising. As social gaming continues to pick up steam among consumers worldwide, a pioneer in the industry like Zynga stands to see rising profits for many years.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!T = Technicals on the Stock Chart are Strong
Zynga has seen its stock price decline since its initial public offering a couple of years ago. The stock is now seeing a strong bounce from lows established last year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Zynga is trading around its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Zynga options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Zynga Options | 58.78% | 23% | 21% |
What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| June Options | Average | Average |
| July Options | Average | Average |
As of today, there is an average demand from call and put buyers or sellers, neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Mixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Zynga’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Zynga look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | 100% | 94.40% | -700% | -400% |
| Revenue Growth (Y-O-Y) | -17.88% | -0.02% | 3.20% | 19.11% |
| Earnings Reaction | -6.56% | 9.12% | 12.2% | -37.4% |
Zynga has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have been a bit confused about Zynga’s recent earnings announcements.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!P = Excellent Relative Performance Versus Peers and Sector
How has Zynga stock done relative to its peers, Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI), Facebook (NASDAQ:FB), and sector?
| Zynga | Electronic Arts | Activision Blizzard | | Sector | |
| Year-to-Date Return | 46.40% | 52.07% | 46.28% | -3.57% | 25.89% |
Zynga has been a relative performance leader, year-to-date.
Conclusion
Zynga provides online entertainment through its gaming services and platforms to a growing audience around the world. The stock has witnessed a good amount of selling pressure over the last few years but is now popping higher. Earnings and revenue figures have been mixed which has only instilled unease in investors. Relative to its peers and sector, Zynga has been a year-to-date performance leader. Look for Zynga to OUTPERFORM.
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