Playtika Holding Corp. (PLTK) and Zynga Inc. (ZNGA) are two popular mobile game developers. They operate in the United States, Europe and internationally. PLTK owns a portfolio of casual and casino-themed games that it distributes to customers through various web and mobile platforms and its own proprietary platforms. ZNGA operates social games services on mobile platforms, social networking platforms, and personal computer consoles.
The increasing use of smartphones and rapidly changing consumer preferences amid an ongoing digital transformation have been driving demand for mobile gaming companies. As young people seek sources of entertainment, escape, and social connection amid the COVID-19 pandemic, leading mobile gaming publishers PLTK and ZNGA have been launching new game themes and technologies to meet the demand.
In terms of past three-month’s performance, ZNGA is the clear winner with 17.5% gains versus PLTK’s negative returns. But which of these stocks is a better pick now? Let’s find out.
Latest Movements
This month, PLTK took on a seven-year, $1.9 billion Term Loan B, and completed an offering of $600 million of senior unsecured notes. The company plans to use the new loan Term Loan B and the proceeds from the notes offering to repay an existing Term Loan B, and for general corporate purposes.
This month, ZNGA acquired Echtra Games, a cross-platform game studio, whose development team is led by developers of Diablo and Torchlight franchises. This experienced team of developers should strengthen the prospects of ZNGA’s cross-platform play future and its proprietary cross-platform development tools and technologies.
Recent Financial Results
In the fourth quarter, ended December 31, PLTK’s total revenue grew 17.5% year-over-year to $573.5 million. The company’s net income increased 153.3% year-over-year to $76 million, while its adjusted EBITDA increased 24% from the prior-year quarter to $210.4 million over this period. Its EPS rose 137.5% from the year-ago value to $0.19.
ZNGA’s revenue increased 52% year-over-year to $616 million in the fourth quarter ended December 31. Its user pay revenue rose 54% from the year-ago value to $499 million. However, the company reported an operating loss of $27.5 million and a net loss of $53 million over this period. Its loss per share came in at $0.05.
Here PLTK is in an advantageous position.
Past and Expected Financial Performance
PLTK’s revenue and EBITDA grew at a CAGR of 27.3% and 13.9%, respectively, over the past three years.
Analysts expect the company’s revenue to increase 3.8% in the current year and 10.1% next year. PLTK’s EPS is expected to grow 16.9% in the current year and 30.2% next year.
In comparison, ZNGA’s revenue and EBITDA grew at a CAGR of 31.9% and 35.2%, respectively, over the past three years.
Analysts expect ZNGA’s revenue to increase 24.9% in the current year and 10.2% next year. The company’s EPS is expected to grow 14.3% in the current year and 20% next year.
Profitability
PLTK’s trailing-12-month revenue is 1.2 times ZNGA’s. In fact, PLTK is more profitable with a gross profit margin of 70% versus ZNGA’s 58.9%.
Also, PLTK’s EBITDA margin of 23.3% compares favorably with ZNGA’s 7%.
Valuation
In terms of trailing-12-month price/sales, ZNGA is currently trading at 5.26x, 16.9% higher than PLTK, which is currently trading at 4.50x. Also, its trailing-12-month ev/ebitda of 76.89x is 232.7% higher than PLTK’s 23.11x.
So, PLTK is the more affordable stock.
POWR Ratings
PLTK has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. However, ZNGA has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Both PLTK and ZNGA have a Momentum grade of C, which is consistent with their price returns over the past three months.
In terms of Quality Grade, PLTK has an A given its higher profitability. Here, the bleak prospect of ZNGA is evident in its Quality Grade of C.
Also, PLTK has a Sentiment Grade of B, which is in sync with analysts’ expectations about its earnings and revenue growth. In comparison, ZNGA has a Sentiment Grade of D.
Of 24 stocks in the B-rated Entertainment – Toys & Video Games industry, PLTK is ranked #1 while ZNGA is ranked #18.
Beyond what I’ve stated above, our POWR Ratings system also rates both PLTK and ZNGA for Growth, Stability, and Value. Get all PLTK’s ratings here. Also, click here to see the additional POWR Ratings for ZNGA.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The Winner
Both PLTK and ZNGA are good long-term investments considering their expanding global footprint and robust product portfolio. However, PLTK appears to be a better buy based on the factors discussed here. PLTK’s higher profitability and earnings growth potential, as well as its relatively lower valuation, make it a better investment bet compared to ZNGA.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Entertainment – Toys & Video Games industry, click here.
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PLTK shares were trading at $26.43 per share on Friday morning, down $1.31 (-4.72%). Year-to-date, PLTK has declined -16.41%, versus a 4.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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