Sell Zynga Inc, Buy King Digital Entertainment PLC?

Source: Zynga.

ZyngaandKing Digital Entertainmenthave been ships passing in the night through most of their publicly traded lives, and that didn't exactly change when Morgan Stanley initiated coverage of the two mobile gaming giants last week.

Analyst Dean Prissman started coverage of Sugar Crush Saga publisher King with a bullish "overweight" rating and an $18 price target. It's a call that represents 22% in upside for the stock from where it was when the Morgan Stanley note was published. Prissman is impressed by King's ability to cross-promote its games across its growing network of more than 350 million players, something that is validated by checking the charts of the highest grossing games.

Candy Crush Soda Saga and the original Candy Crush Saga rank third and fourth, respectively, on Android devices according to industry tracker publisher also appears on the list of highest grossing games with King's Farm Heroes Saga at 11, Pet Rescue Saga at 24, and Bubble Witch 2 Saga at 26. It's no longer the one-trick pony it was a year ago when Candy Crush Saga was accounting for more than two thirds of its bookings.

King is also flushin cash with franchise widening updates in the pipeline to keep rolling in the near future. Even at Prissman's target price of $18, it would find King's enterprise value fetching just 5.7 times his EBITDA forecast for next year.

He's not as hot on Zynga. The pioneer behind FarmVille, Mafia Wars, and Words With Friends has been out of favor on Wall Street, and Prissman doesn't see that improving anytime soon. His ho-hum "equal weight" rating and $2.80 price target paint a discouraging portrait of a company that's been largely backpedalling since bookings and revenue peaked in 2012. Business has started to move slightly higher so far in 2015, but it still has a long way to go to get back to where it used to be.

Morgan Stanley's analyst is encouraged by Zynga's ability to migrate from its roots as the top gaming draw on social networking sites to the mobile gaming market, but he's concerned that it's now at the mercy of new hits given the fading popularity of its iconic franchises. He sees the downside as limited here, but he's obviously not encouraged enough to give the stock a more compelling rating or price target.

The good news for Zynga investors is that it's also swimming in cash. It actually has a larger vault of money than King. However, we've seen how putting its greenery to work in the form of acquisitions has proven fleeting for Zynga. It will need to develop the head-turning game that puts it back at the top of the app download charts, and that's a tall order.

We're at the point where Zynga needs a new hit, and King just needs to keep watering its garden.

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