NEW YORK (TheStreet) -- Zynga (ZNGA) rose Thursday after Wedbush Securities said in a research note that the social gaming company should meet or exceed guidance when it reports first-quarter earnings on April 23.
"Our Q1 estimates are for bookings of $150 million and earnings per share of $0, versus consensus of $148 million and 1 cent, and guidance of $138 million to $148 million and 1 cent," the firm said in a note. "On April 10, Zynga announced the appointment of new CFO David Lee, and CEO Don Mattrick said that 'the year is off to a solid start.' We believe that if Q1 results had fallen short of expectations, Zynga would have preannounced instead. Also, we believe that management has an 'under-promise and over-deliver' approach to guidance, strengthening our belief that it will meet or exceed expectations."
Wedbush also expects Zynga to issue second-quarter guidance on the high end of expectations and to reiterate its fiscal year 2014 guidance.
The stock was up 3.4% to $4.25 at 1:27 p.m. on Thursday.
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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 multiple weaknesses, 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 11.5%. 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