Investors Don't Trust Zynga
Brandy is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I’m about to say something negative about Zynga (NASDAQ: ZNGA). I’ve done that once or twice before. In the interest of brushing off a dead horse before it’s kicked, let me say upfront that I don’t have any grudge against the company. I’ve played some of its games and enjoyed them. The company habit of ripping off smaller titles is a bit smarmy but not something that would raise my ire enough to inspire continued negative coverage. I want Zynga to do better but it seems that the company can’t win for losing.
The latest case in point was the Zynga Unleashed event held last Tuesday. The company revealed impressive stats and a spate of forthcoming games. Investors drove the share price down 5% that day for a closing price of $5.76. It was the latest in a downward trend that’s plagued the company for months.
The Long Road Down
Zynga’s path has been turbulent since its market debut last fall, listing at $10 per share for a $9 billion valuation. Its strongest days came in February, after a Facebook (NASDAQ: FB) announced that Zynga accounted for 12% (later revised to 15%) of its revenue. Zynga soon after announced its new off-Facebook gaming platform and its acquisition of OMGPOP. The company hit the 52-week high of $15.91 on March 2.
The good fortunes weren’t to last. Shares dropped steadily from the record high and closed at $8.27 on May 17, the day before the doomed Facebook IPO. The Facebook flop took Zynga down with it – 13% that day, resulting in a temporary trading halt. That event marked the end of Zynga trading above $8.
Prices continued to scoot downwards. In spectacularly bad timing, Zynga’s first lockup expiration hit on May 29, which brought shares down another 8% that day to $6.09. The numbers waivered until the Unleashed event, which so far has held them down under $6. Zynga closed Friday at $5.38, giving the company a $4 billion market cap.
Unleashed: Impressive Stats with a Game Misstep
CEO Mark Pincus announced some impressive stats at Unleashed for the past three years of business. Players have spent 3 billion hours playing Zynga titles. Game specific metrics included:
- 38,000 games of Zynga Poker (per minute)
- 64,000 games of Words with Friends (per minute)
- 43,000 games of Draw Something (per minute)
Zynga currently has 65 million daily active users (DAUs), 290 million monthly active users (MAUs), and 22 million mobile players. The new Zynga Platform is still experimenting and releases around 100 updates per day and over 1,000 features per week.
Those numbers are nothing to be ashamed of and shouldn’t have caused investors to be nervous. The announced games, on the other hand…
Instead of presenting games that are original (or at least quasi-original, like the licensed Zynga Slingo, which continues to perform well), the company put forth a number of sequels and new games clearly meant to compete with preexisting titles. The most mystifying entry in the latter category is The Ville, which will compete with The Sims Social from Electronic Arts – a game that was made in response to Zynga’s own CityVille. And that’s not the only potential cannibal of the “new” Zynga titles.
Notably missing from the announcements? Gambling games, which were expected and have long been considered Zynga’s best move forwards.
The Coming Months
Zynga will report its second quarter on July 23. Its first quarter narrowly beat expectations but that didn’t help share prices bounce back. The second quarter might follow the pattern of no impact on good news and a much unneeded dip with bad news. There are also more lockup expirations coming Zynga’s way.
Tech stocks in general have been vulnerable since Facebook’s flop. It’s going to take a clear tech IPO victory to turn things around enough that Zynga will get to ride a wave back up.
LynBetz has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.