A new report from Credit Suisse Group AG (NYSE:CS) adds to the weight of disappointment with the most recent Zynga Inc (NASDAQ:ZNGA) earnings report. The analysts put a price target of $3 on the company’s shares, a price 3 percent below the company’s current share price.
Zynga Inc (NASDAQ:ZNGA) shares have already taken an incredible battering after yesterday’s earnings report. Since yesterday’s close, the company’s shares have lost more than 6 percent of their value. Zynga shares rose rapidly towards the close of trading yesterday, but were pummeled after the earnings report was released.
The Credit Suisse report on the company points to several weaknesses in the firm’s business model, including low expected uptake in the firm’s new games, and the lack of a real basis for optimism on the company’s gambling efforts. Zynga Inc (NASDAQ:ZNGA)’s investors are clearly beginning to see the reality of both of those points.
On the firm’s older core business, social gaming, the analysts do not see any real evidence that Zynga Inc (NASDAQ:ZNGA) has the ability to produce the next hit game. The expectation is that the games Zynga Inc (NASDAQ:ZNGA) is set to release in the near future are unlikely to bring in more than 30 million Monthly Active Users each. That number’s enough to keep the company ticking along, but not enough to justify its position as a growth stock.
Zynga Inc (NASDAQ:ZNGA) has had a great deal of success so far in 2013 with its Zynga Slots game, but the company faces considerable competition for Facebook users’ time, and the firm has not yet proven it can live without the world’s biggest social network.
On gambling, the Credit Suisse analysts think that a “wait and see” approach is much more responsible than one that assumes success on the part of Zynga Inc (NASDAQ:ZNGA). Investors piling into the stock in 2013 have been doing so in the hopes that the company will be able to make high profits by getting into the online gambling market. There’s little basis to suggest that the firm has any advantage in that area, however.
The gambling market has high revenue, and high competition. That means that Zynga Inc (NASDAQ:ZNGA) will have to battle many companies with much more experience in order to gain traction. The company is partnering with one of those firms in the United Kingdom, and it may not have the ability to really take the gambling market in the US.