Bank Of America: Zynga's Outlook Keeps Sentiments In Check Despite Earnings Beat

Although Zynga Inc ZNGA reported third-quarter results ahead of expectations, the 2020 outlook reflected lower margins, which kept the stock’s uptrend in check, according to Bank of America.

The Analyst

BofA’s Ryan Gee maintained a Neutral rating on Zynga, reducing the price target from $6.70 to $6.60.

The Thesis

Zynga’s third-quarter bookings were around 3% higher than the Street expectations, driven mainly by Empires & Puzzles and Merge, while EBITDA was about 17% higher, Gee said in the note.

The company guided to fourth-quarter bookings 5% above the consensus estimate and its EBITDA guidance was also 17% better than expected.

Although Zynga maintained its outlook for low double-digit bookings growth in 2020, it projected a year-on-year decline in EBITDA margins, the analyst said.

The company’s outlook implies EBITDA of around $305 million in 2020, versus consensus expectations of $343 million, Gee noted. He further wrote, “We think the revised margin outlook for 2020 will likely keep a lid on estimates and overshadows what was otherwise a positive print.”

The analyst said, however, that margin expansion may not matter if the company’s top-line continues to grow.

Price Action

Shares of Zynga were down 0.48% to $6.18 at the time of publishing on Thursday.

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