Analysts at Bank of America Merrill Lynch (BAML) lowered their 2013 bookings and EBITDA estimates for Zynga Inc (NASDAQ:ZNGA) after the company announced its guidance for the second quarter this year.
In a recent note to investors, BAML analysts Justin Post and Ryan Gee wrote, “Zynga re-affirmed its 2013 EBITDA margin guidance of 0-10 percent, but did not provide a Bookings or EBITDA outlook. While we do not have a visibility on upcoming titles, we think bookings will remain under pressure in 2H, but offsetting cost cuts could drive at least breakeven EBITDA.”
Post and Gee reduced their bookings, EBITDA, and EPS expectations for Zynga Inc (NASDAQ:ZNGA) to $786 million, $40 million, and -$0.04 losses per share. The research firm previously estimated that the company will achieve $845 million bookings, $46 million EBITDA, and -$0.04 losses per share.
“If Zynga Poker and web bookings stabilize in 2H, or if new games gain traction, Zynga could be EBITDA positive in 2014 given material expense rationalization,” added Post and Gee.
The analysts stated that user trends for Poker/Mobile declined by 25 percent quarter over quarter based on AppData. User trends for Words with Friends also dropped by 30 percent quarter over quarter while new mobile titles like Draw Something 2 and Running with Friends are not included in the list of top-grossing titles in the mobile games chart.
Post and Gee also believe that the mobile mid-core launches of Zynga Inc (NASDAQ:ZNGA) for the second quarter such as War of the Fallen and Battlestone might not deliver meaningful bookings for the company. Farmville is the only game with a strong performance.
BAML analysts maintained their neutral rating and lowered their price objective for shares of Zynga Inc (NASDAQ:ZNGA) to $3.60 per share. According to them, their valuation is primarily due to the impact of Poker and Mobile. They said, “We are lowering our PO to $3.60 from $3.80 due to lower estimated annual Poker bookings. We still see $1.8bn in cash/HQ building worth $2.20, poker/mobile worth $1.20, and the Villes worth ~$0.20 given user/booking trends.
Earlier this month, Zynga Inc (NASDAQ:ZNGA) announced its plan to lay-off 18% of its workforce or 520 staff as it continues its cost cutting and restructuring efforts, as reported earlier. The company said that its plan would save $70m to $80 million in pre-tax cash annualized expense. The company anticipated that its net loss for the second quarter of the current fiscal year will be around $28.5 million to $39 million.