Market Overview

Barclays Names 4 Reasons To Be Cautious On Zynga

Barclays Names 4 Reasons To Be Cautious On Zynga

Mobile game maker Zynga Inc (NASDAQ: ZNGA) deserves plenty of credit for nearly tripling its EBITDA in 2017 and and improving its cash flow, according to Barclays — but a bearish thesis is still warranted, according to Barclays.

The Analyst

Barclays' Ryan Gee initiated coverage of Zynga with an Underweight rating and $3.70 price target.

The Thesis

Investors have four reasons to be "cautious" on the maker of mobile games, Gee said in the initiation note. (See the analyst's track record here.) 

They are:

  • It is difficult to predict when or even if Zynga will release a new "hit" mobile game, as repeat success is a key component of owning the stock.
  • Advertising as a percentage of bookings rose from 6 percent in 2012 to 23 percent at the end of 2017, but advertising growth began to decelerate as of the fourth quarter 2017.
  • The company has a poor track record in Asia, which accounts for half of the global $50-billion mobile market.
  • If Zynga's initiatives in new category and geographic expansion don't pan out, the company will see margin compression in the near-term.

Conversely, Gee named four elements of Zynga's stock that investors might find attractive:

  • Direct exposure to the large and growing mobile gaming market.
  • Brand awareness.
  • The ongoing "bold beat" strategy continues to drive better engagement and average revenue per user.
  • The potential for EBITDA improvements.

Zynga shares are trading at 13 times 2019 estimated EBITDA, which is a premium to the digital peer group at less than 10 times estimated EBITDA, the analyst said. The stock factors in future solid execution, but much of the "easy work" to support margin growth has already been done, he said. 

Price Action

Zynga shares were trading down 2.41 percent to $3.86 at the time of publication Thursday. 

Related Links:

How Video Game Developers Are Taking On 'Fortnite' — And Why KeyBanc Remains Bullish

Benzinga's Top Upgrades, Downgrades For August 9, 2018

Photo by Cullen328/Wikimedia.

Latest Ratings for ZNGA

Dec 2020JP MorganUpgradesNeutralOverweight
Dec 2020Wells FargoUpgradesEqual-WeightOverweight
Nov 2020Piper SandlerMaintainsOverweight

View More Analyst Ratings for ZNGA
View the Latest Analyst Ratings


Related Articles (ZNGA)

View Comments and Join the Discussion!

Posted-In: Barclays Mobile Games Ryan Gee video gamesAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

Latest Ratings

MRTXHC Wainwright & Co.Maintains257.0
NVDATruist SecuritiesMaintains672.0
BLKBMO CapitalMaintains715.0
BLKDeutsche BankMaintains838.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at