Zynga Inc (NASDAQ:ZNGA) shares are still on the rise today after last week’s double earnings surprise. Not only was the game maker a week early with its report, but the results were better than expected. JPMorgan analyst Doug Anmuth and his team say they’re encouraged by the steps Zynga has been taking in its efforts to move toward mobile games. However, they say that going into this year, the company still “remains a show-me story.”


Zynga surprises with results

Zynga Inc (NASDAQ:ZNGA)’s results were 7% ahead of Anmuth’s estimates, driven by strength in the company’s core franchises like Zynga Casino and Words with Friends. The company’s EBITDA for the December quarter was also well ahead of their estimates, coming in at $2.6 million rather than their estimated losses per share of $21.1 million. In addition the game maker also announced that it was acquiring game maker NaturalMotion and slashing its headcount yet again in its efforts to transition toward mobile.

NaturalMotion is expected to generate bookings of between $70 million and $80 million for Zynga Inc (NASDAQ:ZNGA) this year and ABITDA of between $15 million and $25 million. That means the acquisition is accretive to non-GAAP earnings per share.

JPMorgan remains Neutral on Zynga

In spite of these positive indicators, Anmuth and his team maintained their Neutral rating on Zynga Inc (NASDAQ:ZNGA), saying that the game maker will continue to face several headwinds throughout the year. They said while some of the challenges are structural, more of them seem to be execution-based. They believe the company’s new titles show signs of good early growth, although they don’t think that growth will offset declines in older games. Also they believe the company’s mobile monetization is far below its Web monetization, which will make it difficult for Zynga to replace the usage it lost from ending the partnership with Facebook Inc (NASDAQ:FB).