It could be a game changer. Zynga Inc (NASDAQ:ZNGA) has a new chief at the helm and it could lead to a paradigm shift in the gaming market. Zynga Inc (NASDAQ:ZNGA) snatched gaming veteran Don Mattrick from Microsoft Corporation (NASDAQ:MSFT), and in doing so, it breathed new life into a stock that has been on life support for months.
The details are scant, but are expected to surface by the end of the month when Zynga Inc (NASDAQ:ZNGA)’s second-quarter results are revealed.
For Microsoft Corporation (NASDAQ:MSFT), it’s a loss, especially considering the company’s recent push into gaming. It’s all smiles over at Zynga Inc (NASDAQ:ZNGA), where the company is showing a united front.
Mark Pincus and Don Mattrick (Source: Zynga)
Unorthodox to have the outgoing CEO making room for new blood? Maybe. But unlike former Groupon Inc (NASDAQ:GRPN) chief executive Andrew Mason, who after being ousted from that company tapped into his musicality and released a CD entitled “Hardly Workin’,” Pincus doesn’t seem to be singing the blues. That’s because Pincus won’t be leaving Zynga Inc (NASDAQ:ZNGA); he’ll stay on as chairman of the board and the chief products officer. If the pair can pull it off, it could not only be a game changer for Zynga Inc (NASDAQ:ZNGA) but could also set a new precedent for other businesses.
Turnaround king
If a turnaround is what Zynga wants, and it is certainly what the company needs, then it has picked the right guy for the job. Mattrick is credited with having grown Microsoft’s Xbox 360 distribution by some 700% to surpass 75 million consoles, according to Zynga.
Mattrick is an entrepreneur who sold his first company to Electronic Arts Inc. (NASDAQ:EA) more than two decades ago. He would then go on to become the president of Electronic Arts Inc. (NASDAQ:EA)’s Worldwide Studios division before inheriting the same title for Microsoft’s Interactive Entertainment business.
While Zynga has had its struggles since losing its exclusive partnership with Facebook Inc (NASDAQ:FB), the company is sitting on about $1.6 billion in cash and cash equivalents as of March 31. There is $186 million remaining in an existing share buyback program, and after repaying its long-term debt of $100 million in April, the company has “no debt outstanding,” according to its most recent earnings report.
As I pointed out in a recent entry, Zynga needs to reinvent itself if only to stay relevant. This is a step in the right direction and investors rewarded the stock with 6% gains when the development surfaced. But, a good day does not erase the free fall that the stock has suffered since the company first went public in 2011.
After cutting its workforce by some 18% last month, Zynga is calling for a second-quarter net loss of between $28.5 million and $39 million. With the exception of Farmville 2, Zynga’s games haven’t been delivering. After reporting $230 million in bookings in the first quarter, Zynga is expecting a decline in bookings for 2013 because strength in Farmville 2 isn’t enough to offset weakness elsewhere. While 2013 is clearly a year of transition for Zynga, the company is making a push from web to mobile to capture more of the estimated $9 billion social gaming market.
No kidding
Mattrick’s direct reports will now report directly to Microsoft’s chief executive Steve Ballmer, according to a report in The Wall Street Journal. A replacement hasn’t been named and Mattrick’s departure couldn’t have come at a worse time for Microsoft (Xbox), which continues to grapple for market share and to distinguish itself from the likes of Japan’s Nintendo (Wii U) and Sony Corporation (ADR) (NYSE:SNE) (PlayStation) in the console and game wars. And despite Mattrick’s success, the WSJ article points out that Xbox sales and subscriptions were on the decline through the first nine-months of Microsoft’s fiscal year. Not a good time for this division to be in flux.
In its most recent quarter, Microsoft’s entertainment and devices division, under which Xbox is grouped, generated a 56% increase in revenue to $2.5 billion. The company boasted of an 18% increase in Xbox Live members in its fiscal 3Q quarter versus the year-ago period.
Incidentally, Microsoft had another recent management change. Amy Hood was named chief financial officer in May, replacing Peter Klein, who left after four years in the role.
Content is king
It’s a different story line over at The Walt Disney Company (NYSE:DIS), where the board of directors just gave the stamp of approval to chairman and CEO Bob Iger. The board extended Iger’s contract until 2016, one year longer than expected. Orin C. Smith of The Walt Disney Company (NYSE:DIS)’s board summed up the reasons in a statement:
The Walt Disney Company (NYSE:DIS) has hit new heights during Mr. Iger’s tenure, with total shareholder return of 193% that dramatically exceeds the S&P 500’s 54%, and a market capitalization that has risen to $113.7 billion from $48.4 billion when he became CEO in 2005.
Iger will continue under the existing terms of his annual compensation agreement. More than 90% of his compensation was performance-based in fiscal 2012.
Content is king, and The Walt Disney Company (NYSE:DIS) just acquired the 100% of the distribution rights for a string of Marvel movies, including Iron Man, its sequel, Thor, and Captain America: The First Avenger. The Walt Disney Company (NYSE:DIS) acquired the rights from Paramount. It was under Iger’s tenure that The Walt Disney Company (NYSE:DIS) acquired Marvel Entertainment, in addition to Lucasfilm, an integration that is still unfolding.
Conclusion
Will the management change bring Zynga out of the doldrums? It did on the day that the management switch was announced. But it’s too soon to say if Mattrick is going to be the change that Zynga needs to create value. I’m not quite ready to bet on the stock yet, but the company has become more interesting. Of the three, Disney is exhibiting the greatest amount of stability. I choose Disney.
The article Disney Shows What Management Stability Means, Can Zynga Follow Suit? originally appeared on Fool.com.
Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Microsoft and Walt Disney. Gerelyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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