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A Closer Look at Zynga’s Valuation

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Jul. 25 2017, Updated 10:39 a.m. ET

Shareholder returns and stock trends

Zynga (ZNGA) generated investor returns of 3.9% in the trailing-one-month period and 36.5% in the trailing-12-month period. The company’s stock price rose 3.6% in the trailing-five-day period.

In comparison, FireEye (FEYE), Microsoft (MSFT), Salesforce (CRM), and Oracle (ORCL) generated returns of -1.9%, 32.2%, 9.8%, and 23.7%, respectively, in the trailing-12-month period.

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Examining Zynga’s cash flow metrics

Zynga has $720 million in cash in hand. Its price-to-cash flow and price-to-free cash flow multiples come in at 55.5x and 66.8x, respectively. For the trailing 12 months, the company’s enterprise value-to-cash-flow was 43.2x and enterprise value-to-free cash flow was 52.0x.

Where do Zynga’s EBITDA ratios stand?

Zynga’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin for last year was -5%, which yielded EBITDA of -$37.3 million—down 47% from the prior year. For the current year, Wall Street is expecting EBITDA of $117.6 million.

EV (enterprise value)-to-adjusted EBITDA for 2017 is expected at 21.5x. Zynga stock is trading at a price-to-EBITDA multiple of -87.3x.

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Inside Zynga’s price and valuation multiples

Zynga’s current book value per share of ~$1.78 for 2016 compares with expected book value per share of ~$1.79 for 2017. Zynga stock is trading at a price-to-book value of ~2.09x.

In comparison, FireEye, Microsoft, Salesforce, and Oracle’s current book values per share are ~$4.7, $9.4, ~$11.2, and ~$13.04, respectively.

Zynga’s price-to-sales of ~4.3x for 2016 also compares with an estimated price-to-sales of ~3.9x for 2017.

Earnings and sales

The EPS for last year of -$0.12 came on total sales of $749 million, down 2% annually. Sales for this year are expected to expand to ~$842.9 million–$920.9 million next year.

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