Looking at game maker Zynga Inc. (NASDAQ: ZNGA) is a good way of seeing how profitable social media could be?
Zynga makes such popular social media games as FarmVille, Zynga Poker, Draw Something, and Words with Friends. Additionally, Zynga offers popular mobile games including slot machine games; fruit machines to the Brits, and Crosswords with Friends.
Zynga is in a growing market, Statista projects global mobile app gaming revenues could from $35 billion in 2015 to $75 billion in 2020. Thus, Zynga is a great company to examine to see how much money social media could generate.
Is Zynga Making Money?
The Zynga (NASDAQ: ZNGA) financial numbers show social media gaming could be a lucrative business.
For instance, Zynga reported a quarterly gross profit of $211.43 million on revenues of $345.29 million on 30 September 2019. Additionally, Zynga reported a quarterly net common income of $230.08 million on the same date.
However, Zynga reported an operating loss of -$73.66 million for the quarter ending on 30 September 2019. Thus, Zynga makes money from its games but loses from its operations.
Does Zynga Generate Cash?
In contrast, Zynga generates cash from its operations but loses cash from its business. For instance, Zynga reported an operating cash flow of $68.61 million and a negative ending cash flow of -$101.9 million on 30 September 2019.
Interestingly, Zynga’s cash flows fell between the last two quarters. Zynga reported an operating cash flow of $98.62 million and an ending cash flow of $484.33 million on 30 June 2019.
Zynga is a Cash-Rich Company
However, Zynga still has a lot of money in the bank. Zynga had $1.435 billion in cash and short-term investments on 30 September 2019.
Zynga’s cash and short-term investments grew from $430.29 million on 30 September 2018 and $853.61 million on 30 June 2019. Thus, Zynga’s cash and short-term investments grew by over $1 billion in a year.
Importantly, cash and short-term investments composed most of the $1.623 billion in current assets Zynga reported on 30 September 2019. In addition, cash and short-term investments composed nearly one third of the $3.578 billion in total assets Zynga reported on 30 September 2019.
Thus, I consider Zynga a cash-rich company and a value investment. I think Zynga is a value investment because Mr. Market priced its shares at $6.63 on 20 January 2020.
However, Zynga is not an income investment because it pays no dividend. Consequently, I think Zynga has too low a margin of safety to be a good stock for average people to invest in. To explain, Zynga is bad for ordinary investors because it pays out no cash.
Is Zynga a Growth Stock?
I consider Zynga (NASDAQ: ZNGA) a growth stock because Stockow estimates its revenues grew at an astounding rate of 48.04% in the quarter ending on 30 September 2019.
Moreover, Zynga’s revenue growth rate increased from 3.85% on 30 September 2018 to 6.6% on 31 December 2018, to 27.46% on 31 March 2018, to 41.21% on 30 June 2019. Hence, Zynga experienced incredible revenue growth over the last year.
If you are looking for a cheap growth stock, Zynga could be a great choice. Zynga has a low share price but its revenues are growing fast.
Zynga’s Bright Future
The data shows Zynga’s future could be bright and lucrative. TechJury; for instance, estimates 2.3 billion people spent $137.9 billion on games worldwide in 2018.
In addition, Statista estimates 63% of American children have played mobile games. Plus, Statista estimates 60% of Americans have played or experimented with mobile games. Finally, the United States is the second largest market for gaming after China. Americans spent $25.426 billion on games in 2018, TechJury estimates.
Mobile games are a growth industry and Zynga is at the forefront of that industry. Given the data, Zynga looks like a cheap growth stock.
Investors with a high level of risk need to look at Zynga because this little game maker could be on the verge of big growth. Moreover, I think Zynga has the potential to generate large amounts of cash.