Late last year, prospects for Zynga (ZNGA) were looking up. By late November, ZNGA stock had hit around $4.50 — a year-to-date climb of over 70% at the time.
But since then, there has been some major erosion in the Zynga stock price. In fact, shares of ZNGA are off by 10% to $3.65 in today’s trading. For the most part, it looks like Wall Street analysts got too optimistic on the turnaround efforts.
So what has caused Zynga stock to crumble? Let’s take a look.
Why Zynga Stock Is Sinking
First of all, ZNGA has shut down its YoVille game. YoVille was once a top title but was not able to keep up the momentum. And unfortunately, the company has had a tough time coming up with new games to make up for these types of losses.
Instead, it looks like the Zynga games are continuing to languish — bad news for Zynga stock in the long run. The environment is brutally competitive, with pressure from hot operators like King.com and Rovio. And there is tough competition from traditional players, such as Electronic Arts (EA) and even Disney (DIS).
Something else: An analyst at Sterne Agee came out with a negative report on ZNGA stock. The call is that fourth-quarter Zynga earnings will likely disappoint. The Sterne Agee report lowered its Q4 estimate for bookings of $137 million to $130 million. Plus, this may not be a one-time event; the weakness is likely to continue throughout the year and first-quarter estimates were slashed as well.
One saving grace for Zynga stock is that the company does have a top-notch CEO in Don Mattrick. He was a former executive at EA, where he spearheaded breakout franchises like the FIFA franchise, Need for Speed, Harry Potter and The Sims. He also headed up Microsoft’s (MSFT) Xbox division. But with ZNGA, the challenge has turned out to be pretty tough.
Then again, Mattrick has been upfront in his belief that a turnaround will take time. Perhaps now Wall Street is starting to get the message, and investors are treating Zynga stock accordingly.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.