BMO Capital Market analysts Edward S. Williams, Thomas F. Andrews and San Q. Phan give Zynga Inc (NASDAQ:ZNGA) a market perform rating.
Zynga Inc (NASDAQ:ZNGA) is showing signs of life as investors are attracted to the substantial cash balance, the growing promise and potential of a new management team, and a reduced cost structure. However, to be increasingly comfortable with the potential of the turnaround, analysts said they need to see further cost reductions and improving playing trends for Zynga games. In the short term, BMO continue to expect bookings to be down materially in 2013 as demand for web-based social network games continues to migrate toward mobile platforms. Analysts at the firm believe bookings could grow in 2014, reflecting increased focus on the company’s core titles, coupled with improved execution in the mobile space.
Zynga’s transition to mobile
Analysts expect the company to continue to build out its expertise within mobile platforms as highlighted by the recent naming of Clive Downie as chief operating officer. They believe Don Mattrick’s long history within the games industry where he has navigated through dozens of platform launches and transitions, coupled with Clive Downie’s mobile background, should help to better position the company for the emerging opportunity within the mobile platforms.
Zynga’s properties to yield better results
Following a series of product launches that ventured away from the core properties that drove Zynga Inc (NASDAQ:ZNGA), analysts expect the company to return to its roots and focus on its core franchises. They believe the focus on the three key properties should yield better results for the company.
Zynga to focus on cost control
Analysts at research firm continue to expect Zynga to focus on controlling costs. In their view, following a period of strong success, Zynga Inc (NASDAQ:ZNGA) let its costs rise too quickly, creating a situation where the company’s cost structure became too high. They expect the new management team to be more efficient and effective at deploying its capital in a way that is able to generate better returns on investments. Some of this should be brought on by the company’s focusing of its resources on core brands and by its being more judicious about which games are green lit.
Zynga identifying core brands
Analysts believe 2013 is about the new management team focusing on identifying core brands and properties to invest in while also identifying areas to cut costs. As analysts look to 2014, however, they expect the company to focus on investment opportunities in new franchises and new brands that could help to reestablish traction for the company with regard to usage, monetization, and revenues. Analysts at the firm don’t expect to gain visibility on some of these new opportunities until 2014, as potential release dates move closer.