Analysts bullish on Zynga despite continued slide

Zynga underwhelmed upon its NASDAQ debut on Friday, finishing the day 5 percent under its $10 IPO value. Into its second day of trading, Zynga hasn't done much better, seeing its stock fall an additional 4.74 percent to end the day at $9.05.

Despite the stock's downward course, both Wedbush and Lazard Capital Markets believe Zynga is in for a rebound before the end of 2012. In separate investor notes today, the two firms placed respective $12.50 and $12 Buy targets on Zynga, with both calling the company the clear leader in the burgeoning social gaming market.

"We believe Zynga is well-positioned for revenue growth due to its dominant market share among social game publishers, its track record of releasing very popular and durable games of the highest quality, and its myriad opportunities to expand beyond Facebook with its increased focus on advertising and the migration of its social games to mobile platforms," Wedbush's Michael Pachter said.

Those sentiments run counter to concerns out of Wall Street indicating Zynga will have a difficult time increasing revenues and profits on its some 227 million monthly users. Detractors have also expressed concerns over reports of CEO Mark Pincus' outsized control over the company, a purportedly hostile working environment, and a possible exodus of high-value employees following the IPO.

However, Pachter's assessment is supported by Lazard's Atul Bagga, who believes it would be exceedingly difficult to displace Zynga atop the growing social gaming market. To draw an equal-sized user base as Zynga would cost between $1 billion and $2 billion, according to Bagga. The company's real advantage, though, is its emphasis on analytics and tracking player usage and spending habits, he said.

Pachter also refuted the idea that Zynga will have a difficult time increasing its player base, saying that he expects the company's users to rise alongside those of Facebook. He projected that the social-networking platform will pass 1 billion users by 2015. Pachter also sees areas of growth for Zynga in the mobile space as well as an expansion into China and the opening of its own online game portal.

Of course, Pachter wasn't without concerns about Zynga's prospects. For one, Zynga's reliance on the Facebook platform puts it on unequal footing for future negotiations with the social media leader. Currently, Facebook remits to Zynga only 70 percent of revenue from Facebook Credits, which are currently the only way to purchase virtual items in games.

The Wedbush analyst also raised a flag about the concentration of revenue for Zynga's products. Though the developer has six of the top 10 Facebook games, 59 percent of its revenues came from the top three titles. Pachter also said that Zynga's "-Ville" games tend to run out of life after about a year. Going forward, he said he expects Zynga to introduce 8 to 10 new games a year, while also retiring four to five annually.