Zynga Inc.

ZNGA Details

Zynga Inc. (NASDAQ: ZNGA) is a social game developer and distributor that creates and distributes social games for mobile devices, social networking sites, PCs, consoles, and other platforms. Popular game franchises include Zynga Poker, Harry Potter: Puzzles & Spells, and CSR Racing. The majority of its income comes from in-game virtual goods and advertising services.

Latest News:

• Acquisition by Take-Two: Take-Two Interactive (Take-Two) and ZNGA, two leaders in interactive and mobile entertainment, announced on January 10, 2022, that they had reached a definitive agreement under which Take-Two will acquire all of ZNGA's outstanding shares in a cash and stock transaction valued at USD 9.861 per ZNGA share, based on the market close on January 07, 2022, with a total enterprise value of approximately USD 12.7 billion. ZNGA stockholders will receive USD 3.50 in cash and USD 6.361 in Take-Two common stock for each share of ZNGA common stock outstanding at the closure of the transaction, according to the terms of the agreement. The purchase price is 64% higher than ZNGA's closing share price on January 07, 2022.

Q3FY21 Results:

• Rise in Topline: The company's overall revenue climbed by 40.02% to USD 704.7 million in Q3FY21 (ended September 30, 2021) compared to USD 503.3 million in Q3FY20, due to growing revenue from both its Online Game and Advertising & Other segments. 
• Decline in Net Losses: The net loss for Q3FY21 was USD 41.7 million, down 65.88% from USD 122.2 million in Q3FY20.
• Cash and Debt Position: The company had USD 1.34 billion in cash and cash equivalents (including short-term investments) as of September 30, 2021, and USD 1.33 billion in total debt.

Key Risks:

• Customer Concentration Risk: Most of ZNGA's earnings come from a small number of paying gamers. In Q3FY21, its Mobile MUPs (monthly unique payers) accounted for only 3.7% of Mobile MUUs (monthly unique users). As a result, any failure to keep existing MUPs or establish new ones could negatively influence the company's operations.

ZNGA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ZNGA's share price has surged 35.42% in the past week and is currently leaning towards the mid-band of the 52-week range of USD 5.57 to USD 12.32. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 76.89.

Considering the uptick in the stock price, acquisition by another company, and gloomy outlook, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 8.875, up 47.92%, as of January 10, 2022, at 9:50 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Tilray, Inc.

TLRY Details

 

Tilray, Inc. (NASDAQ: TLRY) is a major worldwide cannabis lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia, New Zealand, and Latin America, and the industry's broadest global geographic footprint. In the United States, CBD products from Manitoba Harvest and beer from SweetWater are the only segments.

Latest News:

• Inorganic Endeavors: On December 8, 2021, TLRY announced the strategic acquisition of Breckenridge Distillery, a prominent distilled spirits business based in Breckenridge, Colorado. The deal is projected to boost TLRY's EBITDA immediately. According to TLRY, Breckenridge and its existing SweetWater brands have many potentials to complement one other, expanding their reach and generating more profitable growth in the beverage alcohol area.

Q2FY22 Results:

• Growth in Topline: Due to an increase in sales from the cannabis and beverage alcohol businesses and the start of new wellness business revenues, TLRY reported a 19.85% increase in net revenues to USD 155.15 million in Q2FY22 (ended November 30, 2021) from USD 129.46 million in Q2FY21.
• Progress in Bottomline: TLRY witnessed an increase in net income to USD 5.80 million in Q2FY22 from a loss of USD 89.25 million in Q2FY21.
• Adequate Balance Sheet: The company's cash and cash equivalents were USD 331.78 million as of November 30, 2021, with total debt (including convertible debentures) of USD 746.92 million.

Key Risks:

• Customer Concentration Risk: Major clients account for a large portion of TLRY's revenue. Its revenue could plummet if it didn't keep or grow its client relationships or major customers cut back on their purchases.
• Dependence on Third Parties: The TLRY relies on producing and selling certified and licensed cannabis flowers. It may depend on third-party suppliers for high-grade cannabis flowers, increasing costs and putting the company at risk of insecure supply chains and product quality.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TLRY Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

TLRY's share price has surged 20.30% intraday and is currently trading in the lower-band of its 52-week range of USD 6.29 to USD 67.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 47.41. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 7.38.

Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 7.72, up 20.30%, as of January 10, 2022, at 9:54 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.