UBS Upgrades Zynga (ZNGA) to Buy on Renewed Growth

February 4, 2014 6:57 AM EST
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Price: $10.55 +1.15%

Rating Summary:
    25 Buy, 8 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 12 | Down: 7 | New: 31
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(Updated - February 4, 2014 8:49 AM EST)

UBS upgraded Zynga (NASDAQ: ZNGA) from Neutral to Buy with a price target of $6.00 (from $4.00). Analyst Eric J. Sheridan made note of renewed growth and margins.

"We are upgrading Zynga to Buy from Neutral and raising our PT to $6 (from $4) to reflect our increased confidence that: a) Zynga's core operations have begun to realize stabilization under the new management team (led by CEO Don Mattrick), b) that core cost cutting announced with Q4 operating results will result in a bottom for Zynga's EBITDA margins; and c) that the $527mm acquisition of NaturalMotion (a leading iOS gaming company) will result in a greater level of scale and innovation to the broader Zynga mobile game pipeline," said Sheridan.

"What leads us to upgrade now? 1) We believe that Q1 '14 & FY '14 guidance from the recent earnings call will turn out to be conservative due to stability at the core Zynga properties (monetization/usage); 2) NaturalMotion (while inorganic growth) is one of the leading iOS game developers & has seen tremendous success with its CSR Racing and Clumsy Ninja franchises – future growth could come from Android expansion, future pipeline titles & licensing their Euphoria animation tech; and 3) Zynga EBITDA margins (& FCF generation) is likely to materially improve from trough levels (effect of 18 months of core cost cutting & the leverage from NaturalMotion bookings growth) as EBITDA margins return to the 20%+ level in 2015 and beyond," 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 $4.49 yesterday.

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