Zynga Upgraded to Strong Buy - Analyst Blog

On Jul 10, 2013, Zacks Investment Research upgraded Zynga Inc (ZNGA) to a Zacks Rank #1 (Strong Buy). With a strong year-to-date return of 41.8% and a positive estimate revision trend, Zynga is an attractive investment opportunity.

Why the Upgrade?

The recent top-level management change is the primary factor behind the upgrade. In a surprising move, Zynga hired Don Mattrick, ex-head of Microsoft's Xbox division, as the chief executive officer ("CEO"). On Jul 8, Don Mattrick replaced Zynga's founder Mark Pincus, who will continue as the chief product officer and president of the board.

Don Mattrick is credited for developing major EA franchises namely FIFA and the Sims. His successful stint with Microsoft saw the release of Kinect motion technology. He is known for his outspoken manner and also for his management style.

Don Mattrick will look after the day-to-day affairs of Zynga, while Mark Pincus will be responsible for developing games and overseeing important strategic decisions through a new executive committee (jointly headed with Mattrick).

Although we believe that the new CEO has a tough job on his hands, the surge in stock price since the announcement indicates increasing investor confidence in the management change.

Zynga has beaten the Zacks Consensus Estimate in the last four quarters with an average beat of 36.2%. Apart from the CEO change, the recent acquisition of Spooky Cool Lab is another positive move as it will help Zynga to gain traction in the online casino-style gaming market. This will boost bookings going forward.

The Zacks Consensus Estimate for fiscal 2013 remained steady at a loss of 17 cents per share over the last 60 days. However, this estimate is much better than 30 cents loss reported by Zynga in 2012.

For fiscal 2014, the Zacks Consensus Estimate improved a penny to a loss of 13 cents per share over the same period.

Other Stocks to Consider:

Investors can also consider other socia! l and casino gaming stocks that are doing well right now. These include Ameristar Casinos (ASCA), Multimedia Games (MGAM) and International Game Technology (IGT). While Ameristar and Multimedia carry a Zacks Rank #1 (Strong Buy), International Game Technology has a Zacks Rank #2 (Buy).