For the past couple of years, Zynga Inc (NASDAQ:ZNGA) has been a disaster.
The company can’t seem to do anything right. In fact, on the heels of the company’s fourth quarter report, Zynga stock plunged 16% — and an analyst from BTIG called for the resignation of CEO Don Mattrick.
While there is much to complain about, there are signs that the company might actually be poised for a comeback.
ZNGA has actually taken some tough actions to streamline its operations. On a year-over-year basis, the company has cut its operating expenses by about $60 million, or 10%. ZNGA has also focused more on quality development, such as more rigorous testing of new titles, while also dropping of non-performing games (ditching 10 in 2014).
Even with the belt-tightening and deceleration in growth, ZNGA still remains a large operator. In the fourth quarter, bookings came to $182 million on continued strength from franchise titles like FarmVille, Casino and Words With Friends.
Oh, and ZNGA has been able to transition nicely over to mobile. Keep in mind that mobile bookings represent about 60% of overall bookings. Interestingly enough, a recent report from comScore indicates that ZNGA is the “most mobile” property.
ZNGA Gets Back to Gaming
The company has definitely been reinvigorating its creative spark with new titles. For example, the Hit It Rich! slots app saw a 27% sequential spike in bookings growth during Q4.
Then there is Looney Tunes Dash!, which is a traditional runner game. Within two months of its launch, the app snagged more than 30 million downloads, and 86% of the 26 million users were new. Going forward, the company has other titles that have promise, including two strategy war games that leverage ZNGA’s tremendous graphics capabilities.
The company is also investing in the sports category. Even though it upcoming title with Tiger Woods looks ill-timed, the NFL Showdown could get traction. After all, Mattrick was a former executive at Electronic Arts Inc. (NASDAQ:EA), where he helped to build the Madden NFL franchise.
For the most part, Mattrick really just needs to come up with one big hit to get ZNGA back on track. After all, Glu Mobile Inc. (NASDAQ:GLUU) saw its stock jump just because of its Kim Kardashian game.
No doubt, it certainly helps that mobile gaming remains a super lucrative category. According to a report from Newzoo, the market is expected to generate more revenues this year than the traditional console segment.
Then again, mobile gaming is growing at a heady rate. Last year, revenues skyrocketed by 42% to $25 billion and they are forecast to hit $30 billion in 2015. In two years, the revenues are estimated to surpass $40 billion.
As for ZNGA, the company has $1.1 billion in the bank and is trading at about 1 times revenues (excluding the cash on its balance sheet). In other words, the company has the staying power to get to the next hit. And given the investments the company has made, the moves to streamline operations and its interesting pipeline of games, it seems like a reasonable bet that ZNGA could be poised to finally see its fortunes improve.
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.