Shares of online games purveyor Zynga (ZNGA) are down 96 cents, or almost 7%, at $13.72 after JP Morgan’s Doug Anmuth cut his rating on the shares to Neutral from Overweight, but maintained his $15 price target, writing that after a 51% appreciation since late January, the stock reflects much of the upside from recent developments in Zynga’s market.
Investors are specifically optimistic about the “Zynga Platform,” a new “cloud computing” facility to host third-party games, which Zynga unveiled last week. And they are enthusiastic about the potential for online gambling being legalized, and just generally optimistic about social gaming, writes Anmuth.
Zynga “is poised to benefit from a number of key Internet trends,” writes Anmuth, “including social, increased smartphone and tablet penetration, the rapidly growing app economy, and the secular shift toward free-to-play games.”
But, Anmuth has reasons to temper his enthusiasm about Zynga.
Writing about recently introduced games, such as “Scramble with Friends,” and also the casino-style games the company is coming out with, Anmuth concludes “We are optimistic on newer games, but we believe their bookings impact may not be felt more until 2H12.”
As for the Zynga Platform, or Zynga.com, as it’s known, he believes “game economics will not change for Zynga, and it will likely take some time to drive traffic to the new site and for players to get comfortable with an additional gaming destination.”
And as for the move to online gaming, “The legalized U.S. online poker market could be $3.5-$5.0B in 2015 and Zynga has indicated it is talking with all the major gambling players, though timing on either a state-by-state or federal basis is unclear.”
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