Zynga: What Does Wall Street Think?

Shares of Zynga Inc (NASDAQ: ZNGA) were trading higher by nearly 2.50 percent early Friday afternoon as investors appeared to have sufficient reason to buy the stock after the company reported a narrower-than-expected adjusted loss for the second quarter.

Here is a summary of what Wall Street's top analysts are saying after the print.

Morgan Stanley: Q4, An Important Quarter

Dean Prissman, Morgan Stanley, commented in a note that Zynga's second-quarter results were "good" but the company's third-quarter guidance was "softer than expected" due to a fourth-quarter weighted release slate.

Prissman noted that in the second quarter, Zynga's bookings of $174.5 million came in 9 percent above the high end of the company's own guidance, while adjusted EBITDA of $1 million was also $11 million above the high end of guidance. In addition, mobile bookings rose 9 percent quarter-over-quarter and 30 percent year-over-year to $115 million, accounting for 66 percent of total bookings.

Zynga's third-quarter booking guidance at the mid-point implies a 7 percent dip from the second quarter and fares worse than the consensus estimates' calling for a 1 percent gain.

Prissman also added that Zynga's fourth quarter would see a worldwide launch of "Dawn of Titans," CSR2 and a slots game. The analyst added that metrics released for "Dawn of Titans" in geo-lock were "encouraging" as users on average played twice the sessions versus "Empires and Allies."

Bottom line, despite the "encouraging" second-quarter print, the fourth quarter will prove to be a key quarter to further evaluate the company's turnaround.

Shares remain Equal-weight rated with an unchanged $2.80 price target.

Bank Of America: Cautious On New Content

Justin Post, Bank of America, commented in a note that Zynga's bookings are showing signs of "somewhat stabilizing," but a lower-than-expected user base (21 million daily active users versus expectations for 23 million) needs to be highlighted.

Post also noted that Zynga's daily active user base fell to 17 million from 19 million last quarter, while new games ("Empires and Allies" and "Harvest Swap") failed to make it to the U.S. top-20 grossing charts. The company itself stated that its lower user base was partially due to competition over "Words With Friends."

Looking forward to the third quarter, Post argued that Zynga's guidance is "somewhat conservative" given the company's initiatives to lower its labor costs. In addition, with new games scheduled for a worldwide release in the fourth quarter, the analyst sees the potential for bookings growth and "stock enthusiasm" heading into 2016 – if the games prove to capture new users.

However, Post argued that despite the positive steps Zynga is taking, the company has historically "struggled" with new launches and, as such, he is remaining "cautious" on new contents.

Shares remain Underperform rated with a price target lowered to $2.70 from a previous $2.80.

Pacific Crest: Worried Over User Declines

Evan Wilson, Pacific Crest, commented in a note that Zynga's second-quarter report was better than expected, although "significant" user declines continue ahead of key new game launches.

Wilson noted that he was "hopeful" that Zynga's users would "bottom" in the second quarter, following the launch of "Empire and Allies" and "FarmVille: Harvest Slots" in the quarter. The analyst added that while initial monetization was "strong," it was "not enough" to stop the user declines, likely indicating that the games will not prove to be "big hits."

Wilson continued that Zynga's monetization upside is likely "temporary," and he is "not confident" that the company turned around its business, which needs to come from "stabilizing" the user base.

Bottom line, Wilson stated he will remain on the sidelines until the pipeline shows a "greater chance of success."

Shares remain Sector Weight rated with no assigned price target.

Goldman Sachs: Lack Of Conviction

In a brief note, Heath Terry, Goldman Sachs, commented that despite the fact that Zynga has shown "progress" on mobile and pipeline "visibility," the sustainability of already existing games, uncertainty of new launches and continued declines in web remain key risks and overhangs.

Shares remain Neutral rated with an unchanged $3 price target.

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