Zynga Inc (NASDAQ:ZNGA) stock value has been experiencing a downward trend since its initial public offering (IPO). The gaming company’s shares are trading around $3.09 per share on Tuesday, almost 70 percent down from its $10 per share IPO price.
Zynga’s shareholders are weary, following the company’s losses during second quarter. A report from Bloomberg cited that Zynga received the worst valuation in the gaming industry following its third-biggest slump in the Russell 100 index this year.
Some analysts suggest of the possibility that Zynga Inc (NASDAQ:ZNGA) ’s activist investors might push for changes and sell the company to recover their losses. Zynga CEO Mark Pincus firmly said that he would never consider the idea of selling the company. Pincus controls 50.15 percent voting rights in the company’s shares.
Based on the latest report released by Mark Harding, CFA of Digital Media at JMP Securities, Zynga Inc (NASDAQ:ZNGA) show signs of bullishness and it is performing better. The analyst gave an outperform rating for the company with $4.50 target price. The report cited that Zynga is cash flow positive and its downside risk is limited. JMP Securities projected for Zynga to achieve $1,210 million to $1,285 million, and $0.08 to $0.10 adjusted EPS for 2012 and 2013, compared with the consensus estimate of $ 1,222 million to $1,331 million and $0.07 to $0.11 EPS. The research firm anticipated a slow growth for Zynga, with 11% revenue CAGR and 19 % EBITDA CAGR.
The report also suggested Zynga has minimal challenges to achieve its needed monetization to meet its outlook. The company’s monthly active users (MAU) and monthly unique payers (MUP) continue to grow at 5 percent q/q and 17 percent q/q respectively. The research firm believes Zynga’s current MAU would provide modest growth for the company over the next several years. In addition, the company’s recent management restructure was designed to boost its monetization, as the company aligned its game development and strategy with industry trends. JMP also believes Zynga’s platform, new games developed by third parties would generate incremental revenues for the company. Zynga is the largest social gaming company with 285. 7 million monthly active users, the challenge for the company is to boost the rate of its monthly unique payers. According to the research firm, if Zynga would be able to improve its monetization rate, its previous $400 million to $450 million EBITDA outlook for 2012 is achievable.
Dani Dudeck, spokesperson for Zynga, said the company is remaining focused on developing the best social gaming products in the industry. The company is also committed in delivering an engaging social experience to players. The statement implies the company’s confidence in turning around its current financial position. A company take over is definitely not a possibility. In July, Pincus already told investors and employees that he is determined to keep the company independent. “I was upfront with everybody. We’re never going to sell the company. There is no exit. I’ve said, ‘My only exit is by natural causes.”
According to Evan Wilson, analyst at Pacific Crest Securities Inc., Zynga Inc (NASDAQ:ZNGA) ’s shareholders will probably have more near-term faith in the business if the company changes its management.
On the other hand, Paul Sweeney, analyst from Bloomberg Industries said Zynga has an excellent library of games, great developers, and a good brand in the market place, which make the company attractive to anyone interested in engaging in the games business.
Pincus knows his company is attractive and has room for growth. He has all the reasons not to sell it and do everything he can to make it profitable.
According to a report from Bloomberg, some of the companies that maybe interested in acquiring Zynga include Activision Blizzard, Electronic Arts, Google Inc (Nasdaq:GOOG), Microsoft Corporation (Nasdaq:MSFT), Sony Corporation (NYSE:SNE), and Tencent Holdings Ltd. (HK:700).