Zynga (ZNGA) Risk-Reward Looks Attractive, Says Evercore Partners

Evercore Partners maintained an Equal Weight rating on Zynga (NASDAQ: ZNGA) and lowered its price target to $4.50 (from $5.50). Analyst Ken Sena sees upside to shares despite beleagueared traffic trends, increased possibility of launch delays, and rising marketing costs.

" . . . transitioning from a content developer to a platform is not an easy goal, as evidenced by continually disappointing traffic trends. And recent comments by Don Mattrick regarding the uncertain timing of mobile-first launches for existing franchises, plus some cautionary commentary around the timing of launches to optimize for marketing competition, such as against SuperCell’s Hay Day, only seems to further undermine the platform vs. studio argument. Nevertheless, with shares off 50% since the beginning of the quarter, we like the risk reward and see bias to the upside," said Sena.

"Among Zynga’s top 12 games as measured in monthly and daily users, all except for FarmVille 2 declined in both metrics from March to April. CoasterVille and Bubble Safari did see modest growth in MAUs, though DAUs were down 18% and 5%, respectively, a negative leading indicator," continued the analyst. "Recent comments by Don Mattrick regarding the uncertain timing of mobile-first launches for existing franchises (e.g., Words with Friends, FarmVille, and Zynga Poker), plus some cautionary commentary around the timing of launches to optimize for marketing competition, indicate a game pipeline that could be further delayed."

"On valuation, Zynga trades roughly two turns higher than any of its peers at 10x 2015 EBITDA and at the mid range of peers on 2015 revs. However, Zynga's $1.3bn in EV (x-HQ) and $1.1 in cash offers some studio scale power, and if the management's current vision can even partly deliver on the platform side, the risk-reward looks attractive," he added.

For an analyst ratings summary and ratings history on Zynga click here. For more ratings news on Zynga click here.

Shares of Zynga closed at $2.97 yesterday.

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