Back in April of last year, the founder of Zynga Inc (ZNGA), Mark Pincus, retook the helm of the company and said, “I am inspired by our upcoming products — it is the most exciting slate of mobile games in Zynga’s history…”
Unfortunately, there was not much excitement from gamers. As a result, Zynga stock has lost about 20% of its value during Pincus’ comeback. And yes, now he has decided to step down again.
The good news is that his replacement, Frank Gibeau, is top-notch. His background in the gaming industry goes back about 25 years, with major executive stints at Electronic Arts Inc. (EA). For example, he helped to manage top mobile franchises like The Simpsons: Tapped Out, Plants vs. Zombies, Real Racing, Bejeweled, Star Wars, Minions, SimCity, EA Sports and The Sims. He also pulled off a turnaround of the GE Games Label business.
In light of this, it should be not surprise that Wall Street is encouraged. So far in today’s trading, Zynga stock is up more than 3%.
Yet there will still be much work for Gibeau to do. Let’s face it, ZNGA has continued to struggle with its transition from the Facebook Inc (FB) platform to mobile. In the latest quarter, the number of monthly active users plunged by 30% to 68 million. Oh, and the daily mobile users dropped by 14%.
Then again, Mark Pincus really has shown a lack of the creative spark, which has certainly taken a toll on Zynga stock. “His strategy from the beginning has been to create derivative products, either through purchase or copying, and optimizing them analytically to the tune of massive profits,” said Stephen Nichols, who is the CEO of GameSalad. “I’ve seen more than one promising original product within Zynga get squashed by this short-sighted approach. The trouble with this strategy is clear — game players don’t want repeated derivation.”
Bottom Line on Zynga Stock
Now, ZNGA does have a solid balance sheet, with more than $900 million in cash and short-term investments. The company also appears to be ready to sell off its headquarters (purchased for $228 million a few years ago) and there has been aggressive cost cutting and layoffs.
In the meantime, ZNGA expects to release ten new titles for this year and some look very promising, such as Dawn of Titans and CSR2. Yet predicting the success of a mobile game is really a crapshoot. And again, Mark Pincus has not had much of a knack for understanding what gamers want.
Actually, even if there is a hit or two, this may not mean a sustained gain in Zynga stock anyway. After all, there is always the concern that the interest will peak as users look at the many other games available on the app stores from Apple Inc. (AAPL) and Alphabet Inc (GOOG, GOOGL).
Instead, when it comes to gaming, a better bet is to focus on those operators, such as EA and Activision Blizzard, Inc. (ATVI), that have broad platforms across PCs, consoles and mobile.
All in all, they do not have to rely on churning out many new hits to keep up the growth path.
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.