Zynga's Q3 Outlook Could Prove To Be Overly Conservative

Jefferies maintains its Buy on Zynga Inc (NASDAQ: ZNGA) after posted a solid quarter ahead of consensus, and said the company's third-quarter outlook "looks conservative" given the solid launch of "CSR Racing 2" game.

Earnings And Guidance

Zynga guided third-quarter bookings of $180 million–$190 million versus the Street's $188 million and non GAAP EPS of $0.01, which came in line with consensus.

"By year-end we believe user metrics (which have mostly stabilized) could begin to inflect upwards for the first time in years," analyst Brian Pitz wrote in a note.

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"We note ZNGA does not need a breakout hit to drive growth and profitability and we continue to think the risk / reward looks attractive at these levels especially with $1.25 per share in cash, investments, and real estate," Pitz continued.

Game Catalysts

Among others, Pitz's bullish thesis is based on the solid performance of "CSR Racing 2" game, which reached No. 1 on Apple Inc. (NASDAQ: AAPL)'s U.S. App Store and has been consistently ranked as a top-20 "top grossing" app since launch.

"CSR 2's ads are not captured by the top grossing charts, which means CSR 2 is actually monetizing at higher levels than the App Store would indicate," Pitz highlighted.

During this holiday, Zynga will launch NaturalMotion's "console quality" "Dawn of Titans." Pitz also expects a Wizard of Oz themed match-three game, plus "FarmVille: Tropic Escape"also in the second half.

At time of writing, shares of Zynga were down 7.07 percent to $2.76, while the analyst has a price target of $5 on the stock.

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