Intrinsic value of Zynga Inc. - ZNGA

Previous Close

$5.57

  Intrinsic Value

$1.03

stock screener

  Rating & Target

str. sell

-82%

Previous close

$5.57

 
Intrinsic value

$1.03

 
Up/down potential

-82%

 
Rating

str. sell

We calculate the intrinsic value of ZNGA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.60
  6.44
  6.30
  6.17
  6.05
  5.94
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
Revenue, $m
  967
  1,029
  1,094
  1,161
  1,232
  1,305
  1,381
  1,461
  1,544
  1,631
  1,721
  1,816
  1,915
  2,019
  2,127
  2,240
  2,359
  2,483
  2,613
  2,750
  2,892
  3,042
  3,199
  3,363
  3,536
  3,717
  3,906
  4,105
  4,314
  4,533
Variable operating expenses, $m
  931
  984
  1,039
  1,097
  1,157
  1,220
  1,285
  1,353
  1,424
  1,498
  1,470
  1,551
  1,635
  1,724
  1,816
  1,913
  2,014
  2,120
  2,231
  2,348
  2,470
  2,598
  2,732
  2,872
  3,019
  3,174
  3,336
  3,506
  3,684
  3,871
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  931
  984
  1,039
  1,097
  1,157
  1,220
  1,285
  1,353
  1,424
  1,498
  1,470
  1,551
  1,635
  1,724
  1,816
  1,913
  2,014
  2,120
  2,231
  2,348
  2,470
  2,598
  2,732
  2,872
  3,019
  3,174
  3,336
  3,506
  3,684
  3,871
Operating income, $m
  36
  45
  55
  64
  75
  85
  96
  108
  120
  133
  251
  265
  280
  295
  311
  327
  345
  363
  382
  402
  423
  444
  467
  491
  517
  543
  571
  600
  630
  662
EBITDA, $m
  169
  180
  191
  203
  215
  228
  241
  255
  269
  285
  300
  317
  334
  352
  371
  391
  412
  433
  456
  480
  505
  531
  558
  587
  617
  648
  682
  716
  753
  791
Interest expense (income), $m
  0
  5
  7
  9
  10
  12
  14
  16
  18
  20
  23
  25
  27
  30
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  71
  76
  81
  86
  91
  97
Earnings before tax, $m
  31
  38
  46
  54
  62
  71
  80
  90
  100
  110
  227
  238
  250
  262
  275
  289
  303
  318
  334
  350
  368
  386
  405
  424
  445
  467
  490
  514
  539
  565
Tax expense, $m
  8
  10
  12
  15
  17
  19
  22
  24
  27
  30
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
  126
  132
  139
  146
  153
Net income, $m
  22
  28
  33
  39
  46
  52
  59
  66
  73
  81
  165
  174
  182
  192
  201
  211
  222
  232
  244
  256
  268
  282
  295
  310
  325
  341
  358
  375
  394
  413

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,035
  2,167
  2,303
  2,445
  2,593
  2,747
  2,908
  3,075
  3,250
  3,433
  3,624
  3,823
  4,032
  4,250
  4,478
  4,716
  4,966
  5,228
  5,502
  5,789
  6,089
  6,404
  6,735
  7,081
  7,444
  7,825
  8,224
  8,643
  9,082
  9,543
Adjusted assets (=assets-cash), $m
  2,035
  2,167
  2,303
  2,445
  2,593
  2,747
  2,908
  3,075
  3,250
  3,433
  3,624
  3,823
  4,032
  4,250
  4,478
  4,716
  4,966
  5,228
  5,502
  5,789
  6,089
  6,404
  6,735
  7,081
  7,444
  7,825
  8,224
  8,643
  9,082
  9,543
Revenue / Adjusted assets
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
Average production assets, $m
  776
  826
  878
  933
  989
  1,048
  1,109
  1,173
  1,240
  1,309
  1,382
  1,458
  1,538
  1,621
  1,708
  1,799
  1,894
  1,994
  2,098
  2,208
  2,323
  2,443
  2,569
  2,701
  2,839
  2,985
  3,137
  3,297
  3,464
  3,640
Working capital, $m
  -265
  -282
  -300
  -318
  -337
  -358
  -378
  -400
  -423
  -447
  -472
  -498
  -525
  -553
  -583
  -614
  -646
  -680
  -716
  -753
  -793
  -834
  -877
  -922
  -969
  -1,018
  -1,070
  -1,125
  -1,182
  -1,242
Total debt, $m
  130
  161
  193
  227
  262
  298
  336
  376
  417
  460
  505
  552
  601
  653
  707
  763
  822
  884
  948
  1,016
  1,087
  1,161
  1,239
  1,321
  1,407
  1,497
  1,591
  1,690
  1,793
  1,902
Total liabilities, $m
  480
  511
  544
  577
  612
  648
  686
  726
  767
  810
  855
  902
  951
  1,003
  1,057
  1,113
  1,172
  1,234
  1,298
  1,366
  1,437
  1,511
  1,589
  1,671
  1,757
  1,847
  1,941
  2,040
  2,143
  2,252
Total equity, $m
  1,555
  1,655
  1,759
  1,868
  1,981
  2,099
  2,222
  2,350
  2,483
  2,623
  2,769
  2,921
  3,080
  3,247
  3,421
  3,603
  3,794
  3,994
  4,203
  4,422
  4,652
  4,893
  5,145
  5,410
  5,687
  5,978
  6,283
  6,603
  6,939
  7,291
Total liabilities and equity, $m
  2,035
  2,166
  2,303
  2,445
  2,593
  2,747
  2,908
  3,076
  3,250
  3,433
  3,624
  3,823
  4,031
  4,250
  4,478
  4,716
  4,966
  5,228
  5,501
  5,788
  6,089
  6,404
  6,734
  7,081
  7,444
  7,825
  8,224
  8,643
  9,082
  9,543
Debt-to-equity ratio
  0.080
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
Adjusted equity ratio
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  28
  33
  39
  46
  52
  59
  66
  73
  81
  165
  174
  182
  192
  201
  211
  222
  232
  244
  256
  268
  282
  295
  310
  325
  341
  358
  375
  394
  413
Depreciation, amort., depletion, $m
  133
  135
  136
  138
  140
  142
  144
  147
  149
  152
  49
  52
  54
  57
  60
  64
  67
  70
  74
  78
  82
  86
  91
  95
  100
  105
  111
  116
  122
  129
Funds from operations, $m
  155
  162
  170
  178
  186
  194
  203
  212
  222
  232
  214
  225
  237
  249
  261
  275
  288
  303
  318
  334
  350
  368
  386
  405
  425
  446
  468
  492
  516
  541
Change in working capital, $m
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
Cash from operations, $m
  171
  179
  188
  196
  205
  214
  224
  234
  245
  256
  239
  251
  264
  277
  291
  306
  321
  337
  354
  371
  390
  409
  429
  450
  473
  496
  520
  546
  573
  601
Maintenance CAPEX, $m
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -54
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -111
  -116
  -122
New CAPEX, $m
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -160
  -168
  -176
Cash from investing activities, $m
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -137
  -144
  -151
  -159
  -167
  -174
  -183
  -193
  -202
  -212
  -223
  -233
  -245
  -257
  -271
  -284
  -298
Free cash flow, $m
  98
  102
  106
  111
  116
  121
  126
  131
  137
  142
  120
  126
  133
  140
  147
  154
  162
  170
  179
  188
  197
  207
  217
  228
  239
  250
  263
  276
  289
  303
Issuance/(repayment) of debt, $m
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
Issuance/(repurchase) of shares, $m
  73
  72
  71
  69
  67
  66
  64
  62
  61
  59
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  103
  103
  103
  103
  102
  102
  102
  102
  102
  102
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
Total cash flow (excl. dividends), $m
  201
  205
  209
  214
  218
  223
  228
  233
  239
  245
  165
  173
  182
  191
  201
  211
  221
  232
  243
  255
  268
  281
  295
  309
  324
  340
  357
  374
  393
  412
Retained Cash Flow (-), $m
  -95
  -100
  -104
  -108
  -113
  -118
  -123
  -128
  -134
  -140
  -146
  -152
  -159
  -167
  -174
  -182
  -191
  -200
  -209
  -219
  -230
  -241
  -252
  -265
  -277
  -291
  -305
  -320
  -336
  -352
Prev. year cash balance distribution, $m
  136
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  242
  105
  105
  105
  105
  105
  105
  105
  105
  105
  19
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  49
  52
  54
  57
  60
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  232
  96
  91
  86
  81
  76
  71
  66
  60
  55
  9
  9
  9
  8
  8
  7
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  98.5
  97.1
  95.8
  94.7
  93.6
  92.7
  91.8
  91.0
  90.3
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6

Zynga Inc. is a provider of social game services. The Company develops, markets and operates social games as live services played on mobile platforms, such as iPhone Operating System (iOS) operating system and Android operating system and social networking sites, such as Facebook. The Company has developed a range of social games, including games in its Slots, Words With Friends, Zynga Poker and FarmVille franchises. It operates its games as live services and updates them with new features. It analyzes the data generated by its players' game play and social interactions to guide the creation of new content and features. The Company operates its games as live services that are available anytime and anywhere. The Company invests in game categories, including Social Casino, Casual, Action Strategy and Invest Express. Social Casino includes Zynga Poker and its Slots games, such as Hit It Rich! Slots, Wizard of Oz Slots, Willy Wonka and the Chocolate Factory Slots, and Black Diamond Casino.

FINANCIAL RATIOS  of  Zynga Inc. (ZNGA)

Valuation Ratios
P/E Ratio -45.7
Price to Sales 6.7
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 82.3
Price to Free Cash Flow 98.8
Growth Rates
Sales Growth Rate -3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -5.4%
Ret/ On Assets - 3 Yr. Avg. -6.9%
Return On Total Capital -6.4%
Ret/ On T. Cap. - 3 Yr. Avg. -8.3%
Return On Equity -6.4%
Return On Equity - 3 Yr. Avg. -8.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 67.9%
Gross Margin - 3 Yr. Avg. 68.7%
EBITDA Margin -8.5%
EBITDA Margin - 3 Yr. Avg. -13.4%
Operating Margin -15.5%
Oper. Margin - 3 Yr. Avg. -23.4%
Pre-Tax Margin -14.2%
Pre-Tax Margin - 3 Yr. Avg. -21.6%
Net Profit Margin -14.6%
Net Profit Margin - 3 Yr. Avg. -21.1%
Effective Tax Rate -2.9%
Eff/ Tax Rate - 3 Yr. Avg. 2.1%
Payout Ratio 0%

ZNGA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZNGA stock intrinsic value calculation we used $907 million for the last fiscal year's total revenue generated by Zynga Inc.. The default revenue input number comes from 0001 income statement of Zynga Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ZNGA stock valuation model: a) initial revenue growth rate of 6.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ZNGA is calculated based on our internal credit rating of Zynga Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Zynga Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ZNGA stock the variable cost ratio is equal to 97%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ZNGA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Zynga Inc..

Corporate tax rate of 27% is the nominal tax rate for Zynga Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ZNGA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ZNGA are equal to 80.3%.

Life of production assets of 28.3 years is the average useful life of capital assets used in Zynga Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ZNGA is equal to -27.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1596.61 million for Zynga Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 925.512 million for Zynga Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Zynga Inc. at the current share price and the inputted number of shares is $5.2 billion.

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