Don’t Short Zynga—Here’s Why: Analyst
Although Zynga shares hit a fresh all-time low on Friday after the company lowered its full-year guidance, one analyst advised investors against shorting the stock.
“We are getting to the point where I think you could argue some fairly justifiable floor values,” said Ken Sena, an analyst at Evercore Partners.
The online gamemaker’s stock is currently trading slightly above the value of its cash and building assets, which are worth almost $2 per share.
Following Zynga’s forecast of a third-quarter loss, several analysts cut their price targets.
Sena lowered his price target to $1.70 and reiterated his “underweight” rating on the company’s stock. In his model, Sena said he assigned very little value to the core business.
“There is some optionality here, but the transition is going to continue to be rough,” he said.
Sena has assigned some optionality value to the company’s efforts to go into online gambling, but he said the company’s prospects in the business are “fairly dim.”
“If we saw one game that was really a hit for them that was translating onto mobile and was showing that they can monetize there, I think we’d feel completely different about the stock,” he said.
Zynga’s announcement also prompted Sena to lower his payments revenue estimates for Facebook, which derives a portion of its revenue from the online gaming company.
Although Facebook was able to reduce its reliance on Zynga after its first guidance cut earlier this year, it’s unclear whether the social networking giant will be able to do that again this quarter, Sena said.
—By CNBC.com's Katie Little; Follow Her on Twitter @katie_little
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Evercore or an affiliate has acted as a manager or co-manager of a public offering of securities by this subject company in the last 12 months.