Stock under pressure: Zynga Inc (NASDAQ: ZNGA)

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Zynga Inc (NASDAQ: ZNGA) stock surged 12.37% on October 9th, 2018 (Source: Google finance) after an unconfirmed reports the company has received interest from gaming rival companies. Bloomberg News reported that Zynga has received preliminary interest from other game developers interested in acquiring the San Francisco mobile-gaming company, which has repeatedly been brought up in acquisition rumors while struggling to trade for even half its IPO price. The report, which relied on anonymous sources, said that no formal talks had yet taken place and did not name any of the potential suitors. Zynga develops, markets, and operates social games as live services in the United States and internationally. The company’s games are played on mobile platforms, such as iOS and Android operating systems, as well as on social networking sites, including Facebook. The company is based in San Francisco, California.

For the second quarter 2018, revenue was $217.0 million, above the guidance by $9.0 million and up $7.8 million or 4% year-over-year. Bookings were $233.9 million, beating the guidance by $5.9 million and up $24.7 million or 12% year-over-year. The company had a net loss of $0.9 million, $14.1 million better than the company’s guidance and a decline of $6.0 million in net income year-over-year. The company had a net increase in deferred revenue of $16.9 million versus our guidance of a net increase of $20.0 million and a net release of $0.1 million in the prior year quarter. The acquisition of a new portfolio of games and strength in the live service bookings were the primary drivers of the net increase in deferred revenue in the quarter. The main contributors to the build in deferred revenue were bookings from the recently acquired portfolio of titles from Gram Games, initial user pay bookings from Words With Friends and strength in CSR2’s bookings. The year-over-year difference in change in deferred revenue accounted for $17.0 million of the year-over-year decrease in revenue, net income and Adjusted EBITDA.  The company’s  Adjusted EBITDA was $26.7 million, above our guidance by $7.7 million, and a decrease of $3.2 million year-over-year. ZNGA has generated operating cash flow of $41.1 million in the quarter, up 9% year-over-year.

In Q2, mobile revenue was up 7% year-over-year and mobile bookings were up 17% year-over-year. Mobile now represents 89% of total revenue versus 86% a year ago and 90% of total bookings versus 87% in Q2 2017. Mobile advertising revenue was also up 22% year-over-year, and mobile advertising bookings were up 26% year-over-year.

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