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Can Zynga Keep Delivering after a Jackpot May?

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Can Zynga Keep Delivering after a Jackpot May? PART 1 OF 6

Why Morgan Stanley Is Bullish on Zynga

Zynga shares seen hitting $4.50

Experts at Morgan Stanley (MS) see Zynga (ZNGA) shares rising further. In a June 8 note to investors, MS analyst Brian Nowak upgraded his rating on Zynga to “overweight” from “equal weight” and boosted his price target on the stock to $4.50 from $3.00.

Morgan Stanley’s new target price for Zynga stock implies an upside potential of about 20.0%.

Why Morgan Stanley Is Bullish on Zynga

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Although Zynga had a slow start to the year, the stock has steadily built momentum. Shares of Zynga fell ~2.0% in January and rose 5.2% in February. The stock’s gains accelerated in March, rising 7.6% that month, but then slowed down in April, rising only 1.4%. In May, the stock gained 21.8%. As of June 9, the stock had risen 44.4% since the beginning of 2017.

Optimism anchored on live services

Morgan Stanley sees room for Zynga to keep rising, and the basis of this optimism lies in Zynga’s live services business. According to Nowak, live services are driving improvement in engagement and monetization.

Zynga posted revenue of $194.3 million in 1Q17, which was up from $186.7 million in 1Q16, topping the consensus estimate of $191.5 million.

Given the wave of competition that Zynga faces from Electronic Arts (EA), Glu Mobile (GLUU), and Activision Blizzard (ATVI), it appears that ZNGZ will need a strong business model to succeed in the crowded video games publishing industry.

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