house Zynga faces numerous growth challenges, but one analyst is still confident the social game giant has what it takes to find long-term success.
"After a year of platform, infrastructure and game development in 2011, we believe that 2012 could shape up to be a harvest year for Zynga," Baird Equity analyst Colin Sebastian said in a Tuesday research note, announcing the firm's initiation of Zynga coverage.
Sebastian's vote of confidence comes after Zynga went public in December at $10 per share and a valuation of around $7 billion. But amid questions about the company's long-term viability, shares have been selling for under $10.
Zynga shares currently stand at just over $9 each. Sebastian's price target is $12, with an "outperform" stock rating.
The company has released two games since its IPO -- mobile game Scramble with Friends
and Facebook game Hidden Chronicles
-- but the two new titles failed to ignite Zynga shares
Sebastian noted that there are questions as to whether Zynga will see long-term success, but said the company is on the right track.
"Although we see 'yellow flags' from mixed growth and engagement trends in 2011, and a soft start to 2012 new releases," Sebastian said, "we believe Zynga presents an attractive, albeit speculative, investment opportunity based on healthy underlying industry trends, and Zynga’s proven ability to develop and service games to millions of users."
The analyst argued that Zynga was one of the key developers to turn the now 800 million-user Facebook into a games platform, and that "long-term secular shifts in content consumption, along with significant growth opportunities on smart devices from Apple and Google, are too compelling to ignore."
There are a few risks that Sebastian highlighted when investing in Zygna stocks, including the company's heavy reliance on Facebook, revenue that's driven by just a few catalog games and a small percentage of paying users, and a possible decline of user engagement.