Zynga rises post-earnings as analysts back Buy-equivalent rating

Shares of Zynga (ZNGA) were trading higher after the mobile video game company reported quarterly results that beat expectations and provided upbeat guidance for the next quarter and fiscal year. Following the earnings release, no fewer than two analysts issued research notes maintaining Buy-equivalent ratings on the stock. EARNINGS: After the market close on Wednesday, Zynga reported second quarter earnings per share of (6c) on bookings of $376M, compared to analysts' estimates for 5c and $364.5M, respectively. The company noted that its live services continued to drive "great results," particularly with "Empires & Puzzles" and "Merge Dragons!" reaching "record" revenue and bookings in the quarter and "Words with Friends" achieving its best Q2 mobile revenue and bookings in franchise history. GUIDANCE: Looking ahead, the game maker said that, given "strong" momentum from live services, it opted to raise its fiscal 2019 revenue guidance to $1.24B and bookings guidance to $1.5B, up from its previous views of $1.2B and $1.45B, respectively. For the third quarter, Zynga said it expects bookings to be $380M on GAAP EPS of 26c. Analysts expect the company to report Q3 EPS of 5c on bookings of $366.96M. STEPHENS LIKES 2H SETUP: In a research note to investors, Stephens analyst Jeff Cohen maintained an Overweight rating on Zynga with a price target of $8.25, saying that investor expectations were high for this earnings report but the beat and raise "should be enough." Cohen said that Zynga showed "strong" sequential growth, especially from "Merge Dragons!," and was encouraged by the performance of the "Social Casino" portfolio. The analyst added that he "really" likes the setup for the second half of the year as numbers appear to be achievable based on existing games and new games should provide upside. He also said that he sees the potential for accretive M&A as the company as about $1.4B in cash and has signaled a willingness to use it for acquisitions. Cohen noted that a deal would be viewed positive by investors given Zynga's management team's track record of successful acquisitions. JEFFERIES SAYS RESULTS 'FAVORABLE: Meanwhile, Jefferies analyst Alex Giaimo backed a Buy rating on Zynga with a $7.50 price target, saying that the Q2 results reiterate his firm's view that Zynga is "uniquely positioned" to succeed within the fastest growing segment of gaming. Giaimo noted that bears will point to near-term margin compression, but he believes the company is taking a strategic approach to fuel multiple years of sustainable double digit growth. He also argued that, despite the 62% move higher year-to-date, the stock is still "cheap" at 17x estimated 2020 EBITDA. PRICE ACTION: In afternoon trading, Zynga is up 2.6% to $6.54.

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