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Zynga pares losses; criticism of Q2 report subdued

  • While several firms have cut their Zynga (ZNGA -5.7%) targets following yesterday's bookings miss and full-year guidance cut, no downgrades have arrived yet.
  • "We believe that industry growth should allow Zynga to grow revenues by $15 million per quarter sequentially for the foreseeable future," says Wedbush's Michael Pachter (Outperform). He's also pleased monthly unique payers grew by 300K Q/Q to 1.7M, and that other metrics also rose Q/Q (the NaturalMotion deal helped).
  • Credit Suisse's Stephen Ju is reiterating an Underperform, but his lowered $3.50 target remains above Zynga's current trading price. He notes Zynga now appears on pace to launch ~10 games annually (5 are expected in 2H14), something that could yield upward estimate revisions.
  • On the CC (transcript), CEO Don Mattrick stated Zynga chose to "hold back" the launch of new Zynga Poker and Words With Friends releases in Q2 after identifying areas for improvement. In addition, expected revenue recognition for certain NaturalMotion releases has been pushed out to 2015.
  • BTIG's Richard Greenfield questioned whether Zynga needs 2K employees (rather than 500-600), given it's now licensing IP from the likes of Warner Bros. and the NFL to create new games. Mattrick: "We want to build a big, successful app scale company with multiple experiences able to service multiple network partners."
  • Telsey's James Cakmak asked why Zynga isn't using its $1.1B cash balance to buy back shares. CFO David Lee: "We will continuously evaluate the ways to produce superior shareholder returns inclusive of all levers."
  • Prior Zynga earnings coverage

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