JP Morgan downgrades Zynga to neutral

JPMorgan Securities downgraded online game company Zynga Inc to "neutral" from "overweight," saying it may take some time for the company's new site, Zynga.com, to gain traction and for online gambling to be legal in the United States.

However, the brokerage maintained its price target and its "overall positive view" on the stock, but said the risks and rewards of investing in it are now more balanced as it has risen sharply in value since late January.

Zynga had, last week, launched a new service that allows users to play on the company's website instead of Facebook, potentially driving traffic away from the world's No. 1 social network that is its biggest partner.

"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," JPMorgan analyst Doug Anmuth wrote in a note to clients.

The analyst is also optimistic on Zynga's new games but said their impact on bookings may not be felt until the second half of 2012.

Anmuth expects the legalized US online poker market, which could provide a new source of monetization for Zynga, to be worth USD 3.5 billion to USD 5 billion in 2015, but noted that the timing of a legalization of online gambling is unclear.

Anmuth, however, expects Zynga to benefit from increased smartphone and tablet penetration, the rapidly growing application market and growth in its franchise games like FarmVille and Cityville.

According to Thomson Reuters StarMine, Anmuth is rated four stars for the accuracy of his earnings estimates on the companies under his coverage and ranks fifth out of the 14 analysts covering Zynga.

Shares of Zynga were down more than 6% at USD 13.73 on Monday morning on the Nasdaq.