Zynga Inc (NASDAQ:ZNGA) shares declined as much as 2% in intraday trading today, one day after the gaming company hit a one-year high. According to The Street, two bits of news likely played a role in that higher price.
Why Zynga rose yesterday
Wall Street may have been reacting from positive news regarding the gaming industry as Candy Crush maker King Digital said it filed for its initial public offering. The company wants to make as much as $500 million through that offering. Needless to say, the comparisons with Zynga Inc (NASDAQ:ZNGA) are already coming, as analysts compare King Digital to Zynga in an effort to predict whether the game maker’s shares will struggle as much as Zynga’s have since the company filed for its IPO.
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The other piece of news was more directly related to Zynga Inc (NASDAQ:ZNGA). Personalized Media Communications finished a patent licensing agreement with the company. PMC’s patent portfolio is aimed at enhancing content and delivery of media. Those patents will not begin expiring until 2027.
The Street rates Zynga as a Sell
The Street’s ratings team has a Sell rating and a D+ ratings score on Zynga Inc (NASDAQ:ZNGA). The analysts have several concerns which they believe will have greater impacts than any strengths. In addition, they think that these issues will make it difficult for investors to see positive results from Zynga.
Specifically, they noted that Zynga Inc (NASDAQ:ZNGA)’s net operating cash flow has fallen to $7.73 million, which is a 60.9% decline compared to the same quarter a year ago. In addition, Zynga’s cash flow growth rate is far lower than the industry average.
Other concerns including Zynga Inc (NASDAQ:ZYNGA)’s declining gross profit margin, which they note is still extremely high at 84.84%. And in spite of this high gross margin, the company’s net profit margin was -14.31%, which is far lower than the industry average.
The game maker’s revenue also declined more quickly than the industry average, which is 10.6%. Since the same quarter a year ago, Zynga Inc (NASDAQ:ZNGA)’s revenues have declined 43.3%. At this point though, that hasn’t hurt Zynga’s bottom line, as earnings per share have increased because of continued cost cutting efforts.