When the Pandemic hit in 2020, online entertainment went into overdrive. Although Zynga Inc. ( NASDAQ: ZNGA ) was already doing well, at least on the charts, it quickly nullified the dip and went on to create new all-time highs.
Unfortunately, that was not long-lived as it has been on the downward spiral for the last several months after it didn't shine on the few latest earnings reports.
In this article, we will discuss the latest developments and where the stock could potentially go from there.
After Apple lost the skirmish with Epic Games, a California judge ruled in favor of game developers that can now bypass Apple's App Store . The ruling can certainly favor the gaming companies like Zynga, but it might eventually come down to the expense of the indie developers if Apple decides to charge for listing in the app stores.
Meanwhile, the company just made new announcements. First, it announced that ReVamp, a new multiplayer social deception game, will soon launch exclusively for Snapchat. Social deception games grew in popularity after the astronomic success of the cross-platform game “ Among Us. “
Second, the company revealed a trailer for its upcoming free-to-play game, Star Wars: Hunters. You can watch the trailer here .
What is Zynga worth?
According to our discounted cash flow (DCF) model, the company is undervalued at the moment.
We came to this conclusion after calculating the present value of the future cash flow and coming up to the following equation:
Present Value of Terminal Value (PVTV) = TV / (1 + r) 10 = US$21b÷ ( 1 + 7.1%) 10 = US$11b
Compared to the current share price of US$8, the company appears relatively undervalued at a 43% discount. You can read the complete DCF analysis on our news blog .
What does the future of Zynga look like?
Future outlook is an important aspect when you're buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a low price is always a good investment, so let's also look at the company's future expectations.
In Zynga's case, its revenues are expected to grow by 35% over the next few years, indicating a highly optimistic future ahead. If an expense does not increase by the same rate or higher, this top-line growth should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
If you hold the stock, do not be surprised if things get worse before they start getting better. If you're a potential buyer, take note of the latest products and gauge the potential - if you like them, the odds are the broad market might think the same.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 1 warning sign for Zynga , and we think they deserve your attention.
If you are no longer interested in Zynga, you can use our free platform to see our list of over 50 other stocks with high growth potential.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.