Band Stjepan Kalinic
This article first appeared on Simply Wall St News.
After steadily declining for most of the year, Zynga Inc.(NASDAQ: ZNGA) is trying to reverse this trend. The key enabler was a earnings report that showed that while things weren’t great, they weren’t as bad as expected. The stock is now trading near US $ 8, which is a significant point of resistance.
Check out our latest review for Zynga
Third Quarter 2021 Results
- Returned: US $ 704.7 million (up 40% from Q3 2020)
- Net loss: 41.7 million US dollars (loss reduced by 66% compared to 3Q 2020)
The company reported strong third quarter results with reduced losses, improved revenues and better expense control. Over the past 3 years, on average, earnings per share have fallen 58% per year, but its stock price has increased by 30% per year, which means it is way ahead of earnings.
Meanwhile, the company announced an HTML5-based game, “Disco Loco 3D“, designed exclusively for the TikTok platform. Although about 80% of Zynga’s revenue comes from in-game purchases, games for TikTok will not be monetized, at least not initially. The first goal is to seek out the community and learn more about their gaming preferences. TikTok is one of the largest social networking services with over one billion users.
Zynga Debt Review
You can click on the graph below for the historical numbers, but it shows that as of September 2021, Zynga had $ 1.33 billion in debt, an increase of $ 589.3 million, over one year. However, his balance sheet shows that he holds $ 1.34 billion in cash, so he has $ 9.60 million in net cash.
NasdaqGS: History of debt to equity of ZNGA November 10, 2021
Is Zynga’s Track Record Healthy?
Zooming in on the latest balance sheet data, we can see that Zynga had a liability of US $ 1.42 billion due within 12 months and a liability of US $ 1.64 billion beyond. In return, he had $ 1.34 billion in cash and $ 210.0 million in receivables due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by US $ 1.51 billion.
Considering that Zynga has a market capitalization of US $ 7.77 billion, it’s hard to believe that these liabilities pose a big threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. Despite her notable liabilities, Zynga has a net cash flow, so it’s fair to say that she doesn’t have a lot of debt.
Although Zynga recorded a loss in EBIT last year, it was also good to see that it generated US $ 463 million in EBIT over the previous twelve months. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Zynga can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Finally, while the IRS may like accounting profits, lenders only accept hard cash. While Zynga has net cash on its balance sheet, it’s still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow to help us understand how fast it’s building (or eroding) ) this cash balance. Over the past year, Zynga generated strong free cash flow equivalent to 61% of its EBIT, roughly what we expected. This free cash flow puts the business in a good position to repay debt if necessary.
While Zynga’s balance sheet is not particularly strong due to total liabilities, it is positive that it has a net cash position of US $ 9.60 million. Thus, ddespite the significant underperformance of equities in 2021, we are not worried about its level of debt.
There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. Be aware that Zynga shows 2 warning signs in our investment analysis, which you should know …
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash growth stocks today.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.