informa
1 MIN READ
News

Analyst Sterne Agee Initiates Zynga Coverage With 'Underperform' Rating

With social gaming giant Zynga's IPO to begin trading later this week, analyst group Sterne Agee isn't convinced that the FarmVille house can measure up to target share prices.
With social gaming giant Zynga's IPO to begin trading later this week, analyst group Sterne Agee has initiated coverage of the company with an "Underperform" rating. Sterne Agee's Arvind Bhatia noted that, while the potential for social games is definitely present, Zynga's growth has slowed down rapidly in recent months. The company revealed in September that its profits and userbase both declined during its June fiscal quarter. Zynga has set the price range for the IPO at $8.50 to $10 per share. However, Bhatia noted that he will be initiating coverage of the company with a target price of $7 per share. "We are initiating coverage with an Underperform rating," he explained. "We think Zynga's growth is slowing even faster than what is obvious at first, its margins are under pressure, and free cash flow has been declining recently; thus we believe the implied valuation in the IPO is not justified." He cited Farmville and Cityville as titles from Zynga that have now peaked, and noted that Castleville, the latest release in the Ville series, is only averaging DAUs 50 percent below what CityVille achieved during the same timeframe. Finally, Bhatia explained that Zynga's overreliance on Facebook is a concern. Zynga currently sees 94 percent of its revenue generated from Facebook, and Bhatia argued that any disruption to Facebook or policy changes to the service could impact negatively on Zynga. Overall, he suggested that the company will see growth of 20 percent in 2012 and 17 percent in 2013, compared to growth of 156 percent in 2010 and 37 percent in 2011.

Latest Jobs

Manticore Games

San Mateo, California
8.23.22
Senior Software Engineer - Mobile

Sony PlayStation

San Diego, California
6.23.22
Sr. Online Programmer

The Walt Disney Company

Glendale, California
8.1.22
Associate Marketing Manager - Walt Disney Games

Insomniac Games

Burbank, California
8.26.22
Accessibility Design Researcher
More Jobs   

CONNECT WITH US

Explore the
Subscribe to
Follow us

Game Developer Job Board

Game Developer Newsletter

@gamedevdotcom

Explore the

Game Developer Job Board

Browse open positions across the game industry or recruit new talent for your studio

Browse
Subscribe to

Game Developer Newsletter

Get daily Game Developer top stories every morning straight into your inbox

Subscribe
Follow us

@gamedevdotcom

Follow us @gamedevdotcom to stay up-to-date with the latest news & insider information about events & more