Research Report Ends Zynga’s Run

On Wednesday, a research report put a grinding halt on Zynga’s (NASDAQ:ZNGA) recent 15 percent run. The bad news came from questions about company’s growth opportunities.

Down by almost 6 percent today to $8.67, a Cowen & Co. research note by analyst Doug Creutz got the bad news rolling with the following: “Zynga’s valuation contemplates a level of growth over the next year that could be difficult to achieve.” Noting the rising churn rate on Zynga’s games which are played on Facebook, Creutz added that in the last two years, “the average quarterly drop of daily average users has been 18.4 percent. But in the second half of 2011, it rose to 24.4 percent amid the company’s rise in launching new games.”

Creutz, who rates the stock as neutral, added, “Assuming Zynga averages a 20% quarterly rate of decline for titles beyond their launch windows in 2012, the company must add 9-10MM DAUs per quarter from new games just to keep total DAUs constant.”

But for every bit of negative news, there’s something …

positive to be found. Also on Wednesday, Atul Bagga of Lazard Capital wrote that because Zynga has a dominant position among Facebook game providers, it will assist in improving “conversion rates.” This means the rate that it can convert players into paying customers.

Bagga, who maintained his buy rating, added, “We see Zynga more as a platform play given its ability to cross-promote games within its existing userbase and we believe that growth for ZNGA will be largely driven by better audience management.”

While this news comes at the beginning of earnings season, Zynga has not announced when it will report its 2011 fourth quarter earnings.