Zynga (ZNGA) Scores 'Outperform' Rating at Cowen for First Time in History

(Updated - August 3, 2016 8:48 AM EDT)

Cowen analyst Doug Creutz has covered Zynga (NASDAQ: ZNGA) for years, but he never had a positive rating on the company or recommended owning the stock, until now. On Tuesday morning he upgraded Zynga from Market Perform to Outperform with a price target of $3.50.

Creutz's change of heart was tied to the breakout success of CSR Racing 2, along with steady mobile growth for its casino franchises, and valuation. He still has reservations about company management, but he believe this is priced in at current share levels.

"CSR Racing 2 has been a steady top 15 grossing title since its launch a little over a month a go. At that level of performance, we estimate that its annual revenue run-rate, including contributions from advertising, is likely in the $175MM-$190MM per year range, with operating contribution margins likely in the 40%-45% range. With the game sustaining strong performance through a full month, we feel good about its ability to continue strong revenue generation into 2017," said Creutz.

Creutz thinks success of CSR 2 is a good sign for the prospects for Dawn of Titans.

"NatualMotion, the developer of CSR 2, also has the mobile real-time strategy game Dawn of Titans due out before the end of the year. The game has been in development for a long time, and we have long been skeptics about its potential for success. We still think it faces challenges, however the ability of NaturalMotion to deliver one hit title makes us feel better about its ability to deliver two," continued the analyst.

Creutz added, "Zynga currently has six titles in the top 100 grossing iPhone titles (U.S.) - CSR 2, plus five titles in the casino genre, including Zynga Poker and four slots titles. The slots titles were a product of the Spooky Cool Labs acquisition in 2014, and have provided the fuel for Zynga to grow its mobile business at a 35% CAGR since Q3:13 - better than EA and King, and just slightly behind Glu. Further, Zynga has had only one sequentially down quarter in mobile since Q3:13, the best consistent growth performance in the group"

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 $2.85 yesterday.

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