Zynga Inc (NASDAQ:ZNGA) third quarter results reflects that the company is gradually returning towards stability, says a report from Canaccord Genuity analysts Michael Graham and Maria Ripps. Analysts also note that though the company itself is gradually recovering, its marginal games are not, as marginal users are declining at an increasing pace whereas core users in the core games are showcasing good performance.zynga

Bullish and bearish catalysts

From the bullish point of view, core games performed solidly. Franchisees like Farmville 1 and 2 and Zynga Poker contributed 59% of the business and realized $103 million in revenue, which was a marginal decline from $118 million in the second quarter. Bookings for the third quarter were recorded at the high end of guidance, and fourth quarter guidance is given at 11% sequential decline, which is the lowest drop this year.

Booking for Words with Friends increased 37% year on year, which implies that advertising was solid. Management noted the assistance given by the new ad formats like video and there are many bright points in the segment ahead.

From the bearish point of view, MUU dropped at an increasing pace for the straight second quarter to -45%. Revenue for Zynga Poker also came down at an increasing speed. A slow growth rate in the new game launch and no clear strategy by the management is also points to a bearish trend.

Concerns for Zynga

Analysts note no clear forecast can be made without a more vibrant strategy and some insight into the new, exciting games that are queued up for launch. This uncertainty, however, doesn’t prevent the analysts from being structurally positive on the stock. Zynga Poker did not perform in line with expectations in the third quarter, but overall top franchisees continued to be stable.

One concern that analysts echo in the report is that Zynga Inc (NASDAQ:ZNGA) has not come up with any new game recently, which reveals that it is short on innovations and new product development, a key factor in taking growth forward in a sustainable way.

As per analysts estimations, bookings for the fourth quarter are expected to increase from $133 million to $135 million. For 2014, booking and EBITDA are expected to decline from $632 and $53 million to $590 million and $53 million.

Analysts have assigned a Hold rating to Zynga Inc (NASDAQ:ZNGA) and have raised the price target from $3.50 to $4.00.