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How Live Services Affect Zynga

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Live service outlook triggers upgrade

As part of its turnaround, Zynga (ZNGA) has identified growing its existing live service business as a top priority. Live services are deemed so crucial to Zynga’s future that some analysts cite live services as the reason for being bullish on Zynga stock. Earlier this year, Morgan Stanley (MS) analyst Brian Nowak upgraded his Zynga rating to “overweight” from “equal-weight” on the basis of bright prospects for Zynga’s live services. Nowak also raised his price target for Zynga stock to $4.50 from $3.00.

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Live services drive top-line growth

In 2Q17, robust growth in live service sales was responsible for the double-digit increase in Zynga’s top line. Zynga posted 2Q17 revenue of $209.2 million, up 15% year-over-year and $9.2 million above the internal guidance.

Zynga’s 2Q17 top line exceeded the estimate as well. Analysts, on average, were expecting 2Q17 revenue to be $206.8 million.

Live services underpin strong bookings

Live services also supported Zynga’s booking figures in 2Q17. Zynga reported bookings of $209.2 million in 2Q17, up 20% from a year earlier and $4.2 million above the internal forecast. The chart above shows Zynga’s bookings for select quarters.

It remains to be seen if growing live services could bolster Zynga in its competition with Electronic Arts (EA), Glu Mobile (GLUU), and Activision Blizzard (ATVI) for digital gaming revenue. Mobile game marketing alone is projected to exceed $58 billion by 2023.

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