Analyst Sees New Facebook (FB) Agreement as Positive for Zynga (ZNGA)

November 30, 2012 8:34 AM EST Send to a Friend
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Needham and Company is out with a few comments on Zynga (Nasdaq: ZNGA) following disclosure late Thursday that it would no longer be tied to Facebook (Nasdaq: FB) as its primary social network site and, conversely, Facebook would have the right to develop its own games. The firm maintains a Buy rating on Zynga with price target of $4.

Needham's Sean McGowan comments, "We see this as a “post-nup:” that is, the companies are changing the terms of their relationship, but not ending it. We believe these changes will better allow ZNGA to pursue its multi-platform goals."

Zynga will no longer have to use Facebook's payment system or display Facebook ads on games published by other platforms. Zynga will be prohibited from cross-promoting its non-Facebook games on the Facebook platform.

"[W]hile Zynga is free to publish games away from the Facebook platform, those games must be made available on Facebook at the same time or shortly after they are available on other platforms. This does not apply to certain games: mobile games; third party games available on Zynga.com; games that cannot be launched on Facebook for technical reasons; downloadable games; and games launched in China or Japan," noted McGowan.

McGowan was also curious about specific stipulations tied to real-money gaming, assuming the other provisions act like a blanket to cover this measure.

Some risks to upside on Zynga moving forward include: consumer acceptance of new games, ability to maintain audience for older games, development costs, and further changes in the Facebook service agreement, Needham noted.

Ahead of the bell Friday, Zynga is down about 8 percent.


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