For the first couple months of the year, Zynga (ZNGA) seemed to be on the comeback trail. The stock shot up 50% by mid March. However, since then, Zynga stock has lagged, giving up most of those gains.
Despite all this, could Zynga stock still have potential, making it a good buy at current levels? Let’s look at the pros and cons to find out.
Zynga Stock Pros
Leadership: Don Mattrick took the CEO spot of ZNGA back in July 2013 and wasted no time cutting back on the workforce, even letting go a variety of executives, as well as closed down some non-performing s games and studios. At the same time, he made the acquisition of NaturalMotion, which has created hit games like Clumsy Ninja and CSR Racing. But Mattrick’s advantage is his gaming background. Consider that he started his first company, Distinctive Software, when he was 17 and then sold it to EA (EA), where he would eventually become the president of Worldwide Studios. In fact, he helped to create mega franchises like Need for Speed, FIFA, and The Sims. At Microsoft (MSFT), he turned around the Xbox, getting the operation to profitability. Already this experience has had a positive impact on ZNGA, refreshing old games and focusing on new product development, resulting in promising titles like Hit It Rich.
Mobile Megatrend: According to IDC, the worldwide hours spent per month online on mobile devices was 12 billion in 2012. But by 2017, the number is expected to soar to 63 billion. IDC forecasts that mobile gaming revenues will grow at an 18.3% compound annual rate from 2013 to 2017, hitting $14.5 billion. While ZNGA was slow to transition to mobile, the company has certainly made up lots of ground. For 2014, the company expects that mobile bookings will surpass web sources. A big chunk of this has been with in-app purchases. But ZNGA is also getting traction with advertisers.
Financials: Even with the large drop in revenues, ZNGA still has been able to produce positive operating cash flows. What’s more, the company still has a hefty $1.1 billion in the bank. In other words, ZNGA is in a good position to fund new games or purchase companies.
On the negative side…