Zynga recently posted first-quarter revenues and EBITDA above Barclays estimates, owing to which the analysts assigned an Equal-weight rating to the stock with a price target of $3. Analysts believe that the changes introduced by the game maker are for the “better.”
Zynga doing the right thing
Zynga can enjoy $100 million in annual savings through its cost-cutting program, whereas laying off workers could bring benefits earlier than expected. However, centralization of service costs may not pay off until the third-quarter of 2016, the analysts note.
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In its report released Thursday, Barclays noted that founder Mark Pincus has planned a strategy that will keep Zynga focused on five key genres, as well as reducing the pipeline to 6-8 games this year. The report noted that instead of arbitrary decisions, Zynga is doing the right thing by streamlining its pipeline, especially as its right-sizes the workforce.
The analysts noted that Zynga’s efforts to bring down costs are encouraging, but for the stock to continue moving up, upcoming titles need to be successful, which is still difficult to predict with accuracy.
A solid plan
Separately, Wedbush analyst Michael Pachter, in a report published on Thursday, maintained an Outperform rating on the social game maker with a price target of $6 following the better than expected earnings.
Pachter noted that the new CEO has come up with a “solid” plan to “allow Zynga to succeed, but acknowledge that the change in leadership, focus, and perhaps sense of urgency brought on by Mr. Pincus may end up accelerating Zynga’s return to profitability.”
For the first quarter, Zynga posted a loss of $46.5 million, compared to $61.2 million in the same quarter the last year. Revenue came in at $183 million with a loss of a penny per share, above the consensus estimate of $150 million and a loss of 2 cents. Zynga will slash its headcount by 364 employees as part of its cost-reduction plan, which will help it to generate pre-tax savings of $100 million. Pincus claims that employee reduction will help the company to become more ‘simplified,’
On Thursday, Zynga shares closed up 7.28% at $2.80, and year to date the stock is up almost 3%.