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Arvind Bhatia, Sterne Agee senior research analyst, on why Zynga shares are falling, and his outlook for the stock.
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This -- -- -- -- biggest tech IPOs since bill -- but so far -- is having -- lackluster debut at the NASDAQ shares are falling right now about sending nine cents a share after rising.
Till eleven and half dollars earlier -- -- -- games include popular titles including names like from -- and words with friends.
Offering a hundred million shares at ten dollars each valuing the company.
At seven billion dollars but investors are very critical of a number of issues including its dependence on FaceBook.
Daily average user declines in games like farm bill which had admitted elite heat.
And that brings us -- my first guest now he caused a stir earlier on this week when he put.
-- sell rating on easing -- even before it started treating our inbox is its senior research analyst at Sterne Agee.
Joining us now from Dallas art and it's great to have you because you're underperform rating on easing -- -- it before it made its IPO.
Actually cause a lot of headlines why -- you wait for the actual pricing -- happen and just today at all change your outlook.
Well first of all thanks for having me and -- -- business of the company for getting the IPO done.
The reason why we put out the report a few days in advance is because he wanted to help investors understand our view.
Ahead of time I think you know.
Our concerns stem from what VCS slowing growth.
I'm Marge is under pressure precast -- declining and our dependence on another FaceBook platform as you pointed out.
I today's price action doesn't really change our viewpoint our target price is at twelve -- -- -- And in fact I had expected the stock to go up today just because of the inherent ideal hype that comes that they these kinds of deals.
I had expected the first day.
You know it is a performance -- -- So it is a bit of a concerned that the you know write off of the block that stock is actually come in ability IPO price.
The company obviously try to prizes at the upper end.
-- the range lots and challenges ahead for this company but what do you think is the biggest -- that Zynga can turn.
In order to make the biggest change in the most meaningful change address some of those issues that you brought.
Up in a research report.
Price of the biggest concern is that recently they gains have come out with that haven't really worked too well.
Since farm will.
You know peaked a couple of quarters ago they've come -- -- -- -- will in the December quarter of last year.
That has done well but I think is tracking roughly half of by the level of -- well.
And subsequent games every seven mafia wars -- recently came out.
You know with a Big Bang it it came out at 28 million -- daily active users within a few weeks and right now tracking less than a million so they need a big hit they need down more than just out firemen and any well.
If they're going to sustain that growth rate.
You know violence and of those still doing well and we think got 20% top line growth is still doable in 2012.
But that's half aware they have been in the recent past.
You know -- -- one thing visiting -- has been successful lattice turning non gamers like moms and grandmothers and to gamers.
Is it better for using it to focus on this emerging demographic that's now getting utilized by FaceBook are going.
After hardcore gamers or -- both.
You probably have to do a little bit of both but I think what we are seeing probably is that.
Maybe a little bit of a saturation here because the daily active users that Zynga.
I haven't been going up in quite some time so when they unity -- new games they essentially cannibalize existing games.
And the audience that they have tends to be very fickle.
And when you look at the number of actual -- -- it's a very small percentage.
The total which is the model.
But again to -- -- more people and to paying you.
Looks like it's getting harder.
I would you compare the nine months does spending -- had on marketing and the number of -- that added.
It works out to about 300 dollars -- new new pair and we think this new pair is spending about 150 dollars -- So the equation doesn't work if it cost you 300 dollars M -- customer that's gonna pay you 150 -- the challenge.
They've got that was a map that day got Ron big tech companies got wrong in early 2000 tech IPO performance talking about sickle -- This year has been quite fickle pandora -- in seeing that happen at the height that you're talking about earlier that.
A lot of times proceeded then is opportunity in social not as big as we think that it is because this release or the next big horizon we of course waiting for FaceBook.
But is it not sad sort of all that it's cracked up to be.
-- everything we -- generalize what's happening to Zynga.
And extrapolate that to mean that does social.
I'm network growth is -- -- -- I think you know we are up against the law of large numbers Osama that's gonna happen but.
Again we don't know exactly what -- books.
Numbers look like so you know would refrain from making any comments -- FaceBook -- there does seem like a more diversified model.
Obviously.
You know -- a platform -- that everybody wants to be on so I think -- -- a different different situation that case in point is last year.
A what was bad for Zynga was good for FaceBook -- -- -- began charging them 30% of revenue.
As those Zynga saw that impact -- traffic and revenue and an earnings but obviously -- -- benefited from that's -- -- in the driver's seat.
And they they have the levers and so I think guys I don't know if I would generalize -- what you know what's happening to Zynga.
-- not willing to paint to everyone -- the same broad stroke Garvin -- -- Sterne -- coming out of debt.
Very controversial very widely headlined.
Call on seeing out under perform even before -- IPO -- Today debuted thank you very much for joining us.
