Zynga Analyst Duel Sets Mixed Trading and Outlook

Media

Published: February 8, 2014 10:01 am

Last Updated: February 8, 2014 11:09 am

Zynga, Inc. (NASDAQ: ZNGA) took a bit of a reality check this week. After a stellar prior week on news of preannounced earnings and on an acquisition, investors and analysts alike were a bit mixed as far as the outlook for the social gaming company. Now shares are close to where they started, all over again.

It is no secret that Zynga is a very controversial company, nor is it a secret that this is a battleground stock. The company has many bulls behind it and many bears betting against it. A pair of analyst calls from this last week only highlights the controversy here.

BofA Merrill Lynch downgraded Zynga to Underperform from Neutral on Monday. The firm’s price target is $3.80 per share. The analyst team said that there is a lot of execution already priced in the stock. They even see risk to 2014 guidance and pointed out excessive valuations – Take-Two Interactive Inc. (Nasdaq: TTWO) trades at less than 1-times 2015 sales, Zynga at over 3-times.

UBS has a very different take. The firm raised its rating to Buy from Neutral on Tuesday and boosted its price target up to $6 from $4. UBS thinks that Zynga’s core operation has stabilized. Other drivers are the cost cuts and the recent $527 million acquisition. UBS differs from Merrill Lynch, signaling that first quarter guidance and 2014 guidance will prove to be conservative.

Zynga shares rose up to $4.40 from $3.56 two weeks ago on the company’s news-break. This last week brought a new 52-week high of $4.97, but shares were back down to $4.53 in late Friday trading. This stock has not given back its gains from the initial pop, but the stock is back to within about 3% of that adjusted level.

For whatever it is worth, Zynga’s stock price is above the $4.26 consensus price target from analysts. Its short interest as of January 15 was also 37.4 million shares. The battle continues.

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