Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Zynga (Nasdaq: ZNGA) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.
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- Net operating cash flow has significantly decreased to $26.45 million or 66.44% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ZNGA's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 51.53%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- ZNGA, with its decline in revenue, underperformed when compared the industry average of 2.7%. Since the same quarter one year prior, revenues fell by 17.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Compared to other companies in the Software industry and the overall market, ZYNGA INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for ZYNGA INC is currently very high, coming in at 85.80%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ZNGA's net profit margin of 1.56% significantly trails the industry average.
-- Written by a member of TheStreet Ratings Staff