Zynga (ZNGA, Financial) is a San Francisco-based developer of some of the world’s most popular social network and mobile games, including Farmville and Words With Friends. More than one billion people have played a game by Zynga since the company was founded in 2007.
Zynga in the News
Zynga announced its third quarter earnings report on Nov. 6, leaving both analysts and investors unclear on the company’s future. Many believe that the company’s only fighting chance of survival is its hit mobile game franchise, Words With Friends.
In its Q3 earnings, Zynga reported -$0.01 earnings per share, meeting analyst expectations. During the same quarter in the prior year, the company posted ($0.02) earnings per share. Zynga had revenue of $176.6 million for the quarter, compared to the consensus estimate of $171.7 million. The company’s quarterly revenue was down 12.8% on a year-over-year basis. On average, analysts predict that Zynga will post $-0.01 earnings per share for the current fiscal year.
Zynga has struggled to develop new games at a consistent pace. CEO Don Mattrick said in the report, “We have been operating with purpose and it has taken us some time to transform our business as we faced some execution challenges in the quarter. 2014 has been an investment year for us as we assembled a new leadership team, reorganized the company and reset our product pipeline.” He continued, “As we move forward and aggressively compete in an exciting market, we continue to believe that we are well positioned to take advantage of our global scale and diversified product portfolio, and we remain committed to working together as a team to deliver long term value for our consumers, employees and shareholders.”
A Financial Expert’s Opinion
On Nov. 11, Jeffries analyst Brian Pitz upgraded his rating for Zynga from Hold to Buy with a $4.40 price target, believing the company’s Words With Friends franchise to be “a legitimate hit.”
Pitz explained, Zynga’s “fast-growing mobile business now looks large enough to move the needle, offsetting the headwinds around its legacy Facebook/web game business.” Pitz continued to point out that Words With Friends is currently the third most downloaded app, possessing a lot of potential to move Zynga forward. In addition, “The game should benefit from strong seasonal trends around holiday ad prices, and strong demand for video ads.”
Pitz also anticipates Zynga’s pipeline of games in 2015 will help gain the company’s momentum.
Zynga shares shot up 5% in early Wall Street trading as a result of the upgrade.
Brian Pitz’s Past Recommendations
Pitz has a history of rating stocks among a variety of sectors, such as Amazon (AMZN) and SFX Entertainment (SFXE), helping him earn an overall success rate of 62% and a +11.7% average return per recommendation.
Pitz last rated Amazon on Oct. 24 of this year with a Buy. Since then, shares have gone up from $287.06 to $311.47. The Jeffries analyst has rated Amazon nine times since 2009, earning a 63% success rate recommending the stock.
Separately, Pitz last rated SFX Entertainment with a Buy on Aug. 18 when shares of the company were $6.76. Shares of SFX have since dropped to $5.13. Pitz has rated the stock four times with 0% success.
Conclusion
Zynga has been struggling to stay relevant, but Brian Pitz sees great potential. Do you trust his latest recommendation based on his financial advice history?
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