Zynga (ZNGA) Facing Next-Gen Game Risk; Janney Starts at Sell

August 19, 2013 4:30 PM EDT
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Price: $2.64 --0%

Rating Summary:
    8 Buy, 19 Hold, 3 Sell

Rating Trend: Up Up

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Janney Montgomery Scott initiated coverage on Zynga (NASDAQ: ZNGA) with a Sell rating and a price target of $2.50. Despite rapid growth in mobile opportunities, analyst Tony Wible is worried about next generation game risk.

"We believe a substantial portion of the 1.9 million unique payers on ZNGA's platform are hard-core gamers that may incrementally allocate time and money towards the next gen systems launching this holiday. We estimate this demo may account for as much as 60% to 80% of ZNGA's payer base and may be an even larger portion of revenue given the skewing of payments towards a small group of larger purchase payers," said Wible.

"Successful social games benefit from a virtuous cycle as the popularity of a game makes it more enjoyable, pulls more users into the game, and help promote other games. This helps reduce marketing demands and sustains revenue. This benefit is starting to turn against ZNGA as the loss of players erodes the social experience in games, incrementally limits reinvestment, and makes it more difficult/expensive to promote games," he added.

For an analyst ratings summary and ratings history on Zynga (NASDAQ: ZNGA) click here. For more ratings news on Zynga click here.

Shares of Zynga closed at $2.90 yesterday.

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