Social game developer Zynga Inc. (ZNGA - Snapshot Report) and game developer Atari recently launched a mobile version of the popular arcade-style gaming franchise “Breakout.” The mobile game called “Super Sunny Breakout” is currently available on Apple’s (AAPL - Analyst Report) App store and can be played on iPhone, iPad and iPod touch for 99 cents.
The new game revolves around the character Rodney the bunny, whose main objective is to free other critters from cages at the Evil Animal Testing (EAT) labs. Players use the bunny to break into EAT to destroy structures and cages. In the course of their journey, they can either collect or purchase coins via app store in order to feed critters and restore energy as well as purchase virtual goods.
We believe that the popularity of the “Breakout” brand, coupled with its availability on Apple devices such as the new iPhone 5 will benefit the new game going forward. Zynga expects to release the new game on Google’s Android-based devices in the near future, which will further boost customer base going forward.
Lately, mobile gaming has emerged as a key growth market for Zynga. This is particularly due to the strong adoption and increasing spending on mobile games. According to data available from market research firm NPD, currently more than 22% of all gamers in the US play mobile games, a 9% jump from 2011. We believe that this trend bodes well for Zynga going forward.
We believe that the partnership with Atari reflects Zynga’s focus on expanding its third-party developer network, which will help it to improve its presence in the mobile gaming sector going forward.
Moreover, Zynga is well positioned to grow in the near term based on its innovative product pipeline and its dominant position in the social gaming sector. The company’s constant investments in the field of mobile gaming are expected to act as a positive catalyst going forward.
However, monetization of mobile games remains a concern, due to availability of free-to-play games, which are expected to hurt top-line growth going forward. Moreover, higher spending on research & development, technology and game development as well as increasing competition will affect the company’s profitability going forward.
Zynga recently announced its fiscal third quarter 2012 preliminary guidance, wherein the company projected quarterly loss to be in the range of 12 cents to 14 cents per share. For the third quarter, Zynga expects to generate revenues in the range of $300 million to $305 million, which is higher than the Zacks Consensus Estimate of $263 million.
Thus, we remain Neutral on Zynga over the long term (6-12 months). Currently, Zynga has a Zacks #3 Rank, which implies a Hold rating over the short term.