Credit Suisse analyst Stephen Ju has reiterated his Underperform rating on Zynga, lowering his price target on the game maker from $2.93 to $2.87. For 2016, Ju lowered the estimates due to the company’s release slate, which will be partially offset by the efforts to monetize the declining MUP base.
Zynga to have a busy second half
For the fourth quarter, Zynga’s bookings and adjusted EBITDA came in below estimates, but bookings did beat guidance. For the quarter, MUPs came in lower thanexpectations, while the 1.67% conversion rate came in above estimates.
“Similar to prior quarters’ reports, Zynga reported continued deterioration of its monthly active and unique users – the impact of which was offset by increased ARPU and ad monetization,” Ju said.
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He expects Zynga to have a busy second half of the year as games like Dawn of the Titans and CSR2 have been pushed back, giving them additional time for testing. The analyst stated that he is waiting to see “the fruits of Zynga’s game development efforts in 2H16.”
Overpromising and under-delivering
Pacific Crest Securities analysts believe the game maker will trade between its cash value and real-estate value of below $2 and a marginal enterprise-value premium, which gives it a value in the mid-$2s. The game maker will continue to trade in this range unless it can come up with a new mobile hit which is big enough to compensate for the declines from its existing titles, the analysts believe.
Zynga’s fourth-quarter bookings came in slightly above Pacific Crest’s estimate, but reported EBITDA missed by a big margin. Players continue to abandon the game maker, but to win them back, the company plans to release 10 games this year. Pacific Crest analysts are not recommending the stock as the game maker has consistently overpromised and under-delivered.
“As Zynga has transitioned (new chief executive, interim chief financial officer) over the past year, it has continued to make plans for its slate, but then it fails to materialize. We think it is highly likely there will be delays or changes with the 2016 slate as well,” the analyst stated.
On Thursday, Zynga shares closed down 15.02% at $1.81. Year to date, the stock is down by over 32%, while in the last year, it is down by almost 34%.