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Zynga (ZNGA) Risk-Reward Unattractive, Morgan Stanley Cuts to Underweight

June 21, 2013 7:18 AM EDT
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Price: $8.18 --0%

Rating Summary:
    15 Buy, 18 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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(Updated - June 21, 2013 7:42 AM EDT)

Morgan Stanley downgraded Zynga (NASDAQ: ZNGA) from Equalweight to Underweight with a price target of $2.60 (from $3.00) Analyst Scott Devitt sees unattractive risk/reward and thinks the company's transition to mobile will take longer and cut deeper than anticipated. He also thinks Zynga is being surpassed by competitors in web gaming.

"According to DAU estimates compiled by AppData, Zynga has been passed by competitors in web gaming and its key titles are diminishing in presence among the top Facebook games. Zynga is shifting its focus towards mobile gaming where barriers to entry are lower, which makes hit games harder to come by. Recent launches like Draw Something 2, Running With Friends, Solstice Arena, and Battlestone all appear to be quality titles, but only Running (top 10 in downloads, top 30 grossing on iOS) has shown signs of sustained traction so far," said Devitt.

Additionally, Zynga might not see the benefit or real money gaming until 2014 or 2015.

"We believe RMG is potentially a very large global opportunity for Zynga, as discussed in our November 2012 MS Blue Paper, Social Gambling: Click Here to Play. However, we do not think RMG can move the needle for Zynga until 2014 / 2015 since it only operates in one country and may not receive attractive economics until it obtains its own operator licenses," warned the analyst.

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 $2.86 yesterday.


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