Zynga Inc (ZNGA) Shares Up On Earnings Beat, But Clarity Needed: UBS

Zynga Inc (NASDAQ:ZNGA) shares soared on Friday, the day after the company reported losses that weren’t as bad as expected. The game maker also provided a new management structure which UBS analysts believe will result in both efficiency and innovation. Nonetheless, they think more clarity is needed on the company’s plans for 2014 and beyond.

Zynga Inc (ZNGA) Shares Up On Earnings Beat, But Clarity Needed: UBS

UBS remains Neutral on Zynga

Analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo provided their updated view on Zynga Inc (NASDAQ:ZNGA) after the company’s latest quarterly results. They remain Neutral on the game maker but raised their price target from $3.30 to $4 per share.

Zynga did provide results which beat expectations and even the high end of its guidance. Those results were so surprising that investors were apparently happy to overlook the fact that management’s guidance was a bit below Wall Street consensus for revenue, bookings and earnings. The analysts said they expect after Wall Street incorporates the new outlook into its figures, estimates should bottom out before a 2014 operating plan from new management arrives.

Zynga updates new management structure

With Thursday’s earnings report, Zynga Inc (NASDAQ:ZNGA) also provided an update on its new management structure. It was revealed not long ago that former Microsoft Corporation (NASDAQ:MSFT) executive Don Mattrick would become Zynga’s CEO. Founder Mark Pincus will be the company’s chief product officer, while Clive Downie will be the chief operating officer.

The UBS analysts see this structure as a positive for the game maker because they see it driving efficiency and innovation. They note that this management should be focused on growing top franchises which are sustainable, creating new hit games and moving toward mobile gaming. They named Zynga Poker, the Farmville games and Words with Friends as likely anchors of the new strategy before new games are developed.

Zynga estimates lowered

As a result of lower than expected guidance, the analysts lowered their estimates for Zynga Inc (NASDAQ:ZNGA) and said they need more clarity on the company’s future. From what they are able to see, they believe the fame maker will keep seeing year over year revenue declines, although they expect margins will improve next year.

Their new full year 2013 estimate for bookings is $713 million, while they estimate $884 million in revenue. They’re looking for adjusted losses of 5 cents per share for the full year. For the full 2014 year, they expect bookings of $565 million, revenue of $647 million and a loss of 2 cents per share.

About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at Mjones@valuewalk.com.