Why Zynga (ZNGA) Stock Is Gaining Today

NEW YORK (TheStreet) -- Zynga (ZNGA) is climbing after receiving a vote of confidence from Wedbush. The firm added it to its "Best Ideas List," a compilation of stocks which Wedbush has the highest conviction will outperform over the next year. 

Wedbush also reiterated an "outperform" rating and gave a 12-month price target of $7. 

The firm's optimism stems from Zynga's mobile-first strategy which allows players access to its most popular games such as FarmVille, Zynga Poker and Words With Friends anywhere they are. 

In the report, analysts Michael Pachter, Nick McKay and Nick Citrin wrote, "Zynga appears determined to address the "play anywhere" free-to-play market by leading with mobile games and ensuring that its games are available cross-platform."

Wedbush also said it expects Zynga to profitably grow the business to fiscal 2012 levels. 

"We expect to see regular increases in guidance as the company continues to execute on its
strategy. We believe that over 30% contribution margins are achievable over the long run, as Zynga sees revenues grow beyond the $1 billion level again," the analysts wrote. 

Fiscal 2013 revenue dropped to just over $716.2 million, well below $1.15 billion a year earlier. 

By late morning Monday, shares had climbed 0.94% to $4.24. 

Must Read: Warren Buffett's 10 Favorite Growth Stocks

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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Separately, TheStreet Ratings team rates ZYNGA INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZYNGA INC (ZNGA) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly decreased to $7.73 million or 60.90% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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 84.84%. Regardless of ZNGA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ZNGA's net profit margin of -14.31% significantly underperformed when compared to the industry average.
  • The revenue fell significantly faster than the industry average of 11.4%. Since the same quarter one year prior, revenues fell by 43.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • ZNGA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.35, which clearly demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: ZNGA Ratings Report
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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