Zynga’s stock has been getting hammered after the company announced preliminary fiscal results. Investors are clearly concerned when they see the full-year outlook getting slashed and estimates for a net loss of over $100 million. While a number of social games industry pundits believe Zynga is in the midst of crumbling, Webush Securities analyst Michael Pachter believes there’s hope for a turnaround.
“It is not clear that Zynga will turn this around quickly, and our FY:13 estimates reflect flat year-over-year revenues, with solid mobile and advertising revenue growth offsetting continuing declines in virtual item sales on Facebook. However, we think that a reinvented Zynga, with fewer employees and fewer games under development, will see its margins rise, particularly as it grows its mobile and advertising base. Should company management get this right, it could be a home run,” Pachter said.
He continued, “If management reins in costs and focuses on fewer, bigger games, we think that the company has the potential to grow revenues and deliver 20 – 30 percent operating margins, suggesting that the company could earn as much as $0.40 – 0.50/share once it gets things right. Mobile and advertising continue to grow, and the company is running at cash breakeven. While it is sorely tempting for us to jump on the Zynga-hater bandwagon, we are strangely fascinated by the company’s business model, and believe that there is great potential to turn things around.”
Source: GamesIndustry International
