Zynga Inc (NASDAQ:ZNGA) reported second-quarter profits Wednesday that were significantly above expectations.

Although the company raised its full-year guidance by more than the magnitude of the second-quarter beat, there is significant upside ahead from new game launches, according to Wedbush.

The Analyst

Michael Pachter maintained an Outperform rating on Zynga and raised the price target from $7.50 to $9.

The Thesis

Zynga’s second-quarter beat was driven by meaningful bookings upside, and this was the company’s 14th consecutive quarter of sequential adjusted EBITDA growth, Pachter said in a Thursday note. (See his track record here.) 

Adjusted EBITDA came in at $72.8 million, handsomely beating Wedbush’s estimate of $67 million and the consensus estimate of $65.7 million.

The video game maker's adjusted EBITDA margin was reported at 19.3% versus Wedbush’s estimate of 18.4%. 

Bookings came in at $376 million, higher than Wedbush’s estimate of $365 million and the consensus estimate of $364 million.

Although Zynga announced its third-quarter guidance broadly in-line with expectations, it implies a decline in EBITDA, which could prove conservative in light of new game launches, the analyst said. 

Zynga launched "Game of Thrones Slots Casino" May 30 and is scheduled to launch "FarmVille 3," "Puzzle Combat" and "Merge Magic!" in the back half of 2019, he said. 

The revenue and bookings guidance for 2019 was raised from $1.2 billion to $1.24 billion and from $1.45 million to $1.5 billion, respectively. Despite this upward revision, the guidance “still leaves significant room for upside from new games,” Pachter said. 

Zynga’s high growth rate and huge upside to estimates suggest the stock deserves to trade at a premium to its internet peers, according to Wedbush. 

Price Action

Zynga shares were trading higher by 3.21% at $6.58 at the time of publication Thursday.

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