Analyst firm Baird Equity Research has raised its rating on Zynga Inc. from "neutral" to "outperform," trusting the launch of new games this summer and Zynga's expansion into mobile devices will boost the social gaming company.
"This summer, we believe that Zynga will announce a new game slate, including 'mid-core' titles that should appeal to a broader audience of gamers, as well as sequels to existing franchises, such as Farmville," Baird analyst Colin Sebastian wrote in his research report.
The Future is Mobile
According to the analyst, Facebook's recent efforts to focus more on mobile platforms should also benefit Zynga, helping it gain traction on smart devices, and the social gaming company can also draw from Facebook's experience in social and free games. Zynga has seen its shares drop more than half of their market value over the last three months, amid concerns of sluggish growth in social games, as well as usage declines in popular game franchises.
"We view Zynga as still exposed to some app fatigue on Facebook as users seek to diversify their consumption of casual games," wrote Sebastian, as cited by Forbes. "Facebook's recent shift in focus toward mobile platforms should allow Zynga to gain traction on smart devices, also leveraging its expertise in social and free-to-play."
Facebook Dependence, Cause for concern
Social game company Zynga, which went public in December, owns many popular social games such as Farmville, Cityville, Castleville etc. The company, however, relies on the Facebook platform to fetch most of its revenue, and this heavy dependence on the social network has been a notable concern for investors. The stock was significantly affected after Facebook went public in May, facing a disappointing debut. On the other hand, Sebastian sees plenty of potential, including from the close relationship with Facebook.
"While Zynga's dependence on Facebook is a cause for some concern amid slowing growth in social games, we believe Zynga's relationship with Facebook still provides a unique competitive advantage," said the analyst. "Industry checks suggest that other game developers are shifting focus away from Facebook, in part because of Zynga's 'most favored nation' status," added Sebastian. "Over time, we expect that Facebook will improve viral marketing tools for game developers."
