By Eric Eldon
Wall Street has had trouble knowing what to make of Zynga (NASDAQ:ZNGA), considering it’s the first Facebook-oriented virtual goods business to be publicly traded. The stock has been seesawing below its $10 initial share price since the company went public in the middle of December. Main concerns have been its heavy reliance on Facebook for traffic, and on a small number of paying users for most of its revenue, as well as its relatively flat traffic.
But now, it’s getting some more positive signs. First, five banks who underwrote its IPO provided their initial coverage today. They haven’t been able to say anything up until this point due to the company’s now-lifted quiet period. But two less conflicted analysts are also positive. And, traffic is going up.
Goldman Sachs, Morgan Stanley, J.P. Morgan and Barclays Capital all expect the stock to up from its current $9.53 share price to somewhere between $11 and $14. Bank of America Merrill Lynch is a little more down despite its role in the underwriting, suggesting a $10.50 target. It’s easy to say that they’re all bullish because they don’t want to look like they went in high at the $10 mark.
But two more independent analyses, from Robert W. Baird and Piper Jaffay, also weighed in with initial coverage of the company this week. They’re pegging Zynga to rise to $12 and $11, respectively.
Up until now, most analysts have been neutral or negative. Today, if you average out the ratings from the 15 firms covering it, you get a big Neutral, but with an average target price all the way up at $11.08. Check out this list of analyst targets from StreetInsider for more details:
The market hasn’t taken the ratings to heart yet, though, as the stock fell $0.18 by the end of trading this afternoon.
What it has taken well is the possibility of Zynga introducing legal gambling to its games portfolio — the news last week has driven the stock up nearly a dollar from mid-$8.00 territory.
There could be more good news on the horizon. Zynga has struggled to land a truly massive hit lately, which as I noted is one of the reasons some analysts have been concerned. But two new games launched at the beginning of the month appear to be getting some decent traction. Scramble With Friends is dominating the iTunes App Store, and Hidden Chronicles is now Zynga’s seventh-largest game overall.
Both offer some quality gaming (if you’re into this type of play). Scramble is getting positive reviews for its Boggle-like adaption to mobile. Hidden Chronicles, meanwhile, is led by an early creator of games in the hidden objects genre — it’s not a copy of a few competing titles, contrary to what many non-users have assumed.
While Zynga is most assuredly using its proven tactics of advertising and cross promotion to boost the numbers, the quality — and popularity of the genres they’re in — suggest they could have some staying power. And anyway, analysts are going to be focused on numbers like these: 5.9 million daily active users and 11.1 million monthly actives for Hidden Chronicles as of today, according to the AppData tracking service, and 1.2 million DAU and 1.7 million MAU for Scramble With Friends.
These games have helped push Zynga’s overall user counts to 55.6 million DAU and more than 230 MAU, its best showing in the last six months. Traffic isn’t looking quite so flat after all.