We’ve heard Zynga Inc (NASDAQ:ZNGA) called all sorts of things since its initial public offering, but this one is certainly interesting. Wedbush analysts increased their price target for the company after saying they see “several parallels” between Zynga and Amazon.com, Inc. (NASDAQ:AMZN) earlier in its history.
Zynga’s CEO compared to Amazon’s CEO
The main thing analyst Michael Pachter and his team notes is that Zynga Inc (NASDAQ:ZNGA)’s new CEO Don Mattrick is focusing on customers in order to gain market share. This strategy is similar to the one employed by Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos. They didn’t give a whole lot of details regarding other parallels between Zynga and Amazon, but the concept is an interesting one, to say the least.
Mattrick has been focused on hiring the best people possible, like new Chief Operating Officer Clive Downie, who was his first key hire. Downie came to Zynga Inc (NASDAQ:ZNGA) from DeNA. Before that he was with ngmoco and Electronic Arts Inc. (NASDAQ:EA). The Wedbush team believes that, like Mattrick, Downie will be focused on making Zynga as customer-friendly as possible so that the game maker can rebuild its customer base. Pachter believes that as this base grows again, monetization of the company’s products will begin growing again.
Examining Zynga’s strategy
The analysts believe that Zynga Inc (NASDAQ:ZNGA) is focused on the “play anywhere” free-to-play market by making sure that its games are available cross-platform. The company updated the mobile versions of its Words with Friends and Zynga Poker recently and has begun beta testing on the mobile version of its popular Farmville game. They suggest that Zynga will ultimately lead with a mobile-first strategy by ensuring that its games are playable not only on PCs but also on tablets and smartphones.
The Wedbush team also suggests that Zynga Inc (NASDAQ:ZNGA) may be preparing to release a “significant number” of new games soon. They point to the game maker’s current staffing levels. At this point, Zynga has about 2,000 employees, including the 260 who came along with the acquisition of NaturalMotion. That’s still fewer than the 3,400 employees Zynga had while it was at its peak. However, they estimate that about 1,000 employees are working on the company’s existing game franchises and that the rest of them are working on new products.
Zynga to become profitable
The analysts note that Zynga Inc (NASDAQ:ZNGA) management seems confident that the company will be able to hit its profitability and bookings goals. As a result, they believe Zynga will regularly increase its guidance while it executes its turnaround strategy. They don’t think the game maker will be able to deliver “meaningful” growth in profits for “several” more quarters though, as they believe Zynga will keep reinvesting in revenue growth so that it can gain market share. Nonetheless, they believe 30% contribution margins are achievable in the long run as Zynga grows its revenues beyond $1 billion.
The Wedbush team maintained their Outperform rating and increased their price target on Zynga Inc (NASDAQ:ZNGA) from $6 to $7 a share. This is a multiple of six times their 2014 bookings estimate.