Zynga Inc : Strong Facebook dependance

02/08/2012 | 12:38pm Opinion : Bearish under 14.5 USD Target price : 10.5 USD Stop loss: 14.5 USD

NASDAQ Leisure Products

Zynga is a social game developer, whose games, as Farmville accounted for 12% of Facebook revenue in 2011. This company was introduced on Nasdaq stock exchange on December 15th, with a price of 10 USD.
 
The share, as all social media stocks, benefits last week from first step of IPO's Facebook. In fact, Zynga rose 33% last week, and recorded a rebound nearly 40%. For many tech stocks analysts, this enthusiasm could be explained by the rumour that investors might be jockeying for position to receive Facebook shares in an eventual offering perspective. Although this idea been unrealistic, it is supported by an agreement reached from the companies, which locked the game maker into the Facebook Credits system until May 2015. The insufficient diversification and the dependence on Facebook, will be a weak point for Zynga.  
 
On February 14^th, the company will have its first earnings call, and it will be very interesting to comb through the company's numbers carefully and comparing growth rates to other sector’s players, given how fast that company's mobile and social arm is growing.
 
Technically, the share is in upward trend due to last week’s acceleration. We could think that enthusiasm on the stock is excessive. We advise to take a short position in the short-term, before the earnings releases. In the same time we think the technical correction could be continue if releases are worse. We fix a target price at 10.5 USD, and suggest a stop loss above 14.5 USD.

Oscar Salza Copyright (c) 2012 4-Traders.com

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