Is Zynga Stock Headed to Zero?

by Tom Taulli | August 8, 2014 10:48 am

Social gamemaker Zynga (ZNGA[1]) posted a miserable quarter.


This time, ZNGA blamed a delay in new titles, but Wall Street apparently doesn’t care about excuses, as Zynga stock is off 3% in early trading to drag its year-to-date losses down to 25%.

And things might not get back on track until 2015.

So what does this mean for the future of ZNGA stock? Let’s look.

Zynga Earnings

Let’s take a deeper look at the quarter. Zynga earnings weren’t earnings at all — the company recorded a net loss of $62.5 million, or 7 cents per share, which was much worse than the year-ago period’s 2-cent loss. That came on revenues that plunged 34% to $231 million.

Similarly, Zynga’s outlook was weak. For the full year, ZNGA has a revised forecast for bookings of $695 million to $725 million, down significantly from its prior estimate for $770 million and $810 million.

And piling on with bad news, ZNGA has also suffered a fleeing of users — in Q2, daily active users came to 29 million, down a whopping 10 million from the same period last year.

Any wonder that Zynga stock is in the dumps?

Zynga’s Turnaround Strategy

Granted, the fall-off is the result of disciplined action by Zynga CEO Don Mattrick, a veteran of the gaming world who was a top executive at Electronic Arts (EA[2]) and the head of Microsoft’s (MSFT[3]) Xbox division. He he understands that consumers expect top-notch quality from games, which is why he made the tough decision to delay two highly anticipated titles: New Zynga Poker and New Words With Friends.

Mattrick has been working hard on creating new titles to boost growth. Perhaps the most compelling is Zynga’s entry in the sports category, NFL Showdown. Mattrick was the mastermind of the Madden football franchise while at EA, and the timing for a mobile football game is good, with the NFL preseason just newly under way. However, Mattrick’s other title — involving Tiger Woods — looks dicey, with the once-great PGA star struggling following major back surgery.

ZNGA also is trying to rebound by making a move into the “runner” game category (games in which your character runs forward on a track while taking on challenges). To this end, Mattrick has signed a licensing deal with Warner Bros. Interactive Entertainment to use the cartoon characters of Looney Tunes.

All in all, these efforts look promising. If nothing else, they should keep Zynga from falling off the map completely.

Bottom Line

The problem is, considering the frequent disappointments in titles and the volatility in Zynga stock, Wall Street will probably not get enthused until the company shows real progress — something that could easily take a year or more.

In the meantime, the competitive pressures continue to be brutal as other top rivals like Supercell, King Media (KING[4]) and even Glu Mobile (GLUU[5]) — with its highly popular Kim Kardashian: Hollywood game — continue to rack up gains.

Zynga could get its ship turned around … eventually. But even if you think Zynga is on the right track, there’s no rush to jump into ZNGA. Things likely will get worse before they get better.

Tom Taulli runs the InvestorPlace blog IPO Playbook[6]. He is also the author of High-Profit IPO Strategies[7]All About Commodities[8] and All About Short Selling[9]. Follow him on Twitter at @ttaulli[10]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. ZNGA: /stock-quotes/ZNGA-stock-quote/
  2. EA: /stock-quotes/EA-stock-quote/
  3. MSFT: /stock-quotes/MSFT-stock-quote/
  4. KING: /stock-quotes/KING-stock-quote/
  5. GLUU: /stock-quotes/GLUU-stock-quote/
  6. IPO Playbook:
  7. High-Profit IPO Strategies:
  8. All About Commodities:
  9. All About Short Selling:
  10. @ttaulli:

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