Zynga Inc (NASDAQ:ZNGA) has not been doing well for some time now, and during trading on Friday, the stock fell to a new 52-week low of $2.23. Year to date, shares are down by over 40%. The stock has a 50-day moving average of $2.89 and a 200-day moving average of $3.32.
Signs of weakness evident
Zynga is going through a tough phase of falling operating margins from three consecutive quarters. A recent report from Seeking Alpha notes, “After turning positive in 2012, during the release of FarmVille 2, trailing 4Q operating margins have continued to slide and reached -16% in the most recent quarter.”
There has been a massive decline in the number of users / players of games who spend money, and this has led to a decline in operating profits. The operating margins for the rest of the industry are flat, and hence, the decline in Zynga Inc’s margins is primarily due to the internal weakness of the game maker.
From the level achieved by the company in 2012, revenues have declined to almost half. Revenue was $153 million in the last quarter. The most depressing factor is that the cost of SG&A and R&D has been noted at $168 million, which is too high, keeping in mind that massive cost cutting measures are being adopted by the company.
Investors / analysts not too optimistic on Zynga
A number of research reports have been recently revealed analysts’ verdicts on Zynga. In a research note on Sept. 8, Zacks analysts lowered their rating from Outperform to Neutral and set a price target of $3.30. Wedbush analysts, in a research note on Aug. 8, reduced their price target on the stock from $7 to $6. Analysts at Benchmark Co, in a note on Aug. 8, slashed their price target on Zynga from $3.08 to $2.83. Overall, two analysts have given a Sell rating, and six have rated the stock as a Hold. Presently, Zynga has consensus rating of Hold and an average price target of $3.86.
The game maker witnessed a rise in short interest during September. As of Sept. 15, short interest totaled to approximately 59.2 million shares, which is an increase of 12.4% from the Aug. 29 total of 52.7 million. Almost 8% of the company’s shares are short sold.