Intrinsic value of Zynga - ZNGA

Previous Close

$4.28

  Intrinsic Value

$0.27

stock screener

  Rating & Target

str. sell

-94%

Previous close

$4.28

 
Intrinsic value

$0.27

 
Up/down potential

-94%

 
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 3.3

 

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, %
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
Revenue, $m
  893
  927
  964
  1,003
  1,045
  1,089
  1,136
  1,186
  1,238
  1,294
  1,353
  1,415
  1,480
  1,550
  1,622
  1,699
  1,780
  1,865
  1,955
  2,049
  2,148
  2,253
  2,363
  2,478
  2,599
  2,727
  2,861
  3,002
  3,150
  3,305
Variable operating expenses, $m
  1,028
  1,064
  1,103
  1,145
  1,189
  1,236
  1,285
  1,338
  1,394
  1,453
  1,436
  1,502
  1,572
  1,645
  1,723
  1,804
  1,890
  1,980
  2,076
  2,176
  2,281
  2,392
  2,508
  2,631
  2,760
  2,895
  3,037
  3,187
  3,344
  3,509
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
  1,028
  1,064
  1,103
  1,145
  1,189
  1,236
  1,285
  1,338
  1,394
  1,453
  1,436
  1,502
  1,572
  1,645
  1,723
  1,804
  1,890
  1,980
  2,076
  2,176
  2,281
  2,392
  2,508
  2,631
  2,760
  2,895
  3,037
  3,187
  3,344
  3,509
Operating income, $m
  -135
  -137
  -139
  -141
  -144
  -147
  -150
  -153
  -156
  -159
  -84
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -177
  -185
  -194
  -204
EBITDA, $m
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -89
  -93
  -97
  -102
  -107
  -112
  -118
  -124
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  19
  21
  23
  25
  27
  29
  32
  34
  37
  39
  42
  45
  48
Earnings before tax, $m
  -135
  -137
  -140
  -144
  -147
  -151
  -154
  -158
  -163
  -167
  -93
  -98
  -103
  -109
  -115
  -121
  -128
  -135
  -142
  -150
  -158
  -166
  -175
  -185
  -195
  -205
  -216
  -228
  -240
  -253
Tax expense, $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
Net income, $m
  -135
  -137
  -140
  -144
  -147
  -151
  -154
  -158
  -163
  -167
  -93
  -98
  -103
  -109
  -115
  -121
  -128
  -135
  -142
  -150
  -158
  -166
  -175
  -185
  -195
  -205
  -216
  -228
  -240
  -253

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
  1,607
  1,668
  1,734
  1,804
  1,879
  1,959
  2,043
  2,132
  2,227
  2,327
  2,433
  2,545
  2,663
  2,787
  2,918
  3,056
  3,202
  3,355
  3,516
  3,686
  3,864
  4,052
  4,249
  4,457
  4,675
  4,904
  5,145
  5,399
  5,665
  5,945
Adjusted assets (=assets-cash), $m
  1,607
  1,668
  1,734
  1,804
  1,879
  1,959
  2,043
  2,132
  2,227
  2,327
  2,433
  2,545
  2,663
  2,787
  2,918
  3,056
  3,202
  3,355
  3,516
  3,686
  3,864
  4,052
  4,249
  4,457
  4,675
  4,904
  5,145
  5,399
  5,665
  5,945
Revenue / Adjusted assets
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
Average production assets, $m
  650
  675
  702
  730
  761
  793
  827
  863
  901
  942
  985
  1,030
  1,078
  1,128
  1,181
  1,237
  1,296
  1,358
  1,423
  1,492
  1,564
  1,640
  1,720
  1,804
  1,892
  1,985
  2,083
  2,185
  2,293
  2,406
Working capital, $m
  -172
  -179
  -186
  -194
  -202
  -210
  -219
  -229
  -239
  -250
  -261
  -273
  -286
  -299
  -313
  -328
  -344
  -360
  -377
  -395
  -415
  -435
  -456
  -478
  -502
  -526
  -552
  -579
  -608
  -638
Total debt, $m
  12
  26
  40
  55
  72
  89
  107
  127
  147
  169
  192
  217
  242
  269
  298
  328
  360
  393
  428
  465
  504
  545
  588
  633
  681
  731
  784
  839
  897
  958
Total liabilities, $m
  350
  364
  378
  393
  410
  427
  445
  465
  486
  507
  530
  555
  580
  608
  636
  666
  698
  731
  766
  803
  842
  883
  926
  972
  1,019
  1,069
  1,122
  1,177
  1,235
  1,296
Total equity, $m
  1,256
  1,304
  1,356
  1,411
  1,469
  1,532
  1,598
  1,668
  1,742
  1,820
  1,903
  1,990
  2,082
  2,179
  2,282
  2,390
  2,504
  2,623
  2,749
  2,882
  3,022
  3,168
  3,323
  3,485
  3,656
  3,835
  4,024
  4,222
  4,430
  4,649
Total liabilities and equity, $m
  1,606
  1,668
  1,734
  1,804
  1,879
  1,959
  2,043
  2,133
  2,228
  2,327
  2,433
  2,545
  2,662
  2,787
  2,918
  3,056
  3,202
  3,354
  3,515
  3,685
  3,864
  4,051
  4,249
  4,457
  4,675
  4,904
  5,146
  5,399
  5,665
  5,945
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.140
  0.140
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
  0.210
Adjusted equity ratio
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -135
  -137
  -140
  -144
  -147
  -151
  -154
  -158
  -163
  -167
  -93
  -98
  -103
  -109
  -115
  -121
  -128
  -135
  -142
  -150
  -158
  -166
  -175
  -185
  -195
  -205
  -216
  -228
  -240
  -253
Depreciation, amort., depletion, $m
  101
  102
  103
  104
  105
  106
  107
  108
  110
  111
  33
  34
  36
  38
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
Funds from operations, $m
  -33
  -35
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -94
  -100
  -106
  -112
  -118
  -125
  -132
  -139
  -147
  -155
  -163
  -172
Change in working capital, $m
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
Cash from operations, $m
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -55
  -58
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -92
  -97
  -102
  -108
  -114
  -121
  -128
  -135
  -142
Maintenance CAPEX, $m
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
New CAPEX, $m
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
  -108
  -113
Cash from investing activities, $m
  -45
  -47
  -50
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -135
  -141
  -148
  -156
  -164
  -172
  -181
  -189
Free cash flow, $m
  -72
  -75
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -116
  -123
  -129
  -137
  -144
  -152
  -160
  -169
  -178
  -188
  -198
  -208
  -220
  -231
  -244
  -257
  -270
  -285
  -300
  -315
  -332
Issuance/(repayment) of debt, $m
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
Issuance/(repurchase) of shares, $m
  181
  186
  192
  199
  205
  213
  220
  228
  237
  246
  175
  185
  195
  206
  217
  229
  241
  254
  268
  282
  297
  313
  330
  347
  365
  385
  405
  426
  448
  471
Cash from financing (excl. dividends), $m  
  193
  199
  206
  214
  221
  230
  238
  247
  258
  268
  198
  209
  221
  233
  246
  259
  273
  287
  303
  319
  336
  354
  373
  392
  413
  435
  458
  481
  506
  532
Total cash flow (excl. dividends), $m
  122
  124
  127
  130
  133
  136
  140
  144
  147
  151
  76
  80
  84
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
  149
  156
  164
  173
  181
  191
  200
Retained Cash Flow (-), $m
  -181
  -186
  -192
  -199
  -205
  -213
  -220
  -228
  -237
  -246
  -175
  -185
  -195
  -206
  -217
  -229
  -241
  -254
  -268
  -282
  -297
  -313
  -330
  -347
  -365
  -385
  -405
  -426
  -448
  -471
Prev. year cash balance distribution, $m
  431
  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
  372
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -90
  -94
  -100
  -105
  -111
  -117
  -123
  -130
  -137
  -145
  -153
  -161
  -170
  -179
  -188
  -198
  -209
  -220
  -232
  -244
  -257
  -271
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
  356
  -57
  -57
  -57
  -56
  -55
  -54
  -53
  -51
  -50
  -47
  -45
  -42
  -39
  -36
  -33
  -30
  -27
  -23
  -20
  -18
  -15
  -12
  -10
  -8
  -6
  -5
  -4
  -3
  -2
Current shareholders' claim on cash, %
  93.1
  86.8
  80.9
  75.4
  70.4
  65.6
  61.3
  57.2
  53.5
  50.0
  47.7
  45.5
  43.4
  41.4
  39.4
  37.6
  35.8
  34.1
  32.4
  30.9
  29.4
  27.9
  26.6
  25.3
  24.0
  22.8
  21.7
  20.6
  19.6
  18.6

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 (ZNGA)

Valuation Ratios
P/E Ratio -35.1
Price to Sales 5.1
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 63.3
Price to Free Cash Flow 75.9
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 $861.39 million for the last fiscal year's total revenue generated by Zynga. The default revenue input number comes from 0001 income statement of Zynga. 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 3.7% 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, 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.
    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 115.4%.

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.

Corporate tax rate of 27% is the nominal tax rate for Zynga. 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 72.8%.

Life of production assets of 32.5 years is the average useful life of capital assets used in Zynga 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 -19.3%. 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 - $1641.24 million for Zynga - 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 775.225 million for Zynga 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 at the current share price and the inputted number of shares is $3.3 billion.

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