The bounce in shares of Zynga Inc (NASDAQ:ZNGA) ( might be over. After paying an outrageous amount of money for a Microsoft executive and getting surpassed as the biggest game developer on Facebook Inc (NASDAQ:FB) by King.com, it appears that investors might want to take profit in Zynga Inc (NASDAQ:ZNGA).
Zynga is up 45% in 2013:
Investor sentiment about Zynga Inc (NASDAQ:ZNGA) switched to bullish when the company said it hired Don Mattrick, a former Microsoft executive who was the boss for Xbox. The new CEO will be paid $5 million for the next 5 years, and the stock awards total $40 million. The total compensation will be $95 million, if all performance targets are met, though 8.9 million in restricted stock is not vested until July 2016.
No real change in leadership
The newly formed Executive Committee was approved by the board, according to the SEC filing on June 27, 2013. The committee, which is comprised of Mattrick and Pincus, Zynga’s founder, “will serve to manage the operations and affairs of the Company between Board meetings, and will report to the full Board.”
Dominance on Facebook lost
AppData reported that for the month ending July 6, 2013, Zynga lost its lead as the most popular game developer on Facebook to King.
| # | App Name | Monthly Active Users |
|---|---|---|
| 1 | King | 150,251,400 |
| 2 | Zynga | 147,687,743 |
| 3 | Microsoft | 71,418,060 |
Data Source: AppData
King is the maker of Candy Crush Saga, and is number one on Facebook. Zynga Inc (NASDAQ:ZNGA)’s FarmVille 2 is a distant 4th place, trailing Candy Crush by 14 million Monthly Average Users (MAUs):
| # | App Name | MAU |
|---|---|---|
| 1 | Candy Crush Saga | 45,541,052 |
| 2 | TripAdvisor™ | 40,269,431 |
| 3 | Criminal Case | 34,637,861 |
| 4 | FarmVille 2 | 31,658,976 |
Data Source: AppData
Alternative investments
Investors taking profits in Zynga Inc (NASDAQ:ZNGA) might want to consider mobile game makers like Glu Mobile Inc. (NASDAQ:GLUU). Glu Mobile Inc. (NASDAQ:GLUU) rose 11% recently after investors speculated that the $17 million revenue guidance will prove to be beatable. 3 of Glu Mobile Inc. (NASDAQ:GLUU)’s games are on the top 30 list of iOS games in China.
In March, insider buying picked up. In fact, in the last 12 months, insider buying exceeded selling:
| Type | Last 12 Mo. |
|---|---|
| Total Shares Traded: | 5,976,967 |
| Number of Shares Bought: | 3,338,127 |
| Number of Shares Sold: | 2,638,840 |
Source: Nasdaq.com
Bearishness is also very high. The short float is 25.1% as of June 14, 2013.
Another software game maker to consider is Take-Two Interactive Software, Inc. (NASDAQ:TTWO). In June, Apple said that game controllers would be allowed to interact with Apple devices. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) would benefit if demand for mobile games increase. In particular, strategy games like Ace Patrol would see an increase in sales. The Grand Theft Auto III title, remade for mobile, would also benefit from a game controller for Apple.
In May, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) sold $250 million in convertible senior notes, which are due in 2018. The financing will be used partly to refinance another debt due next year. The company is set to report quarterly earnings on July 30, 2013 after the market closes.
Foolish Bottom Line
Investors are too optimistic that Zynga Inc (NASDAQ:ZNGA)’s downtrend is reversing. The company reduced headcount, only to use the funds for executive compensation. There are other opportunities to look at. The demand for mobile devices is not slowing down enough for mobile game makers to worry. Investors could start a position in companies like Take-Two and Gluu Mobile instead–both companies give exposure to investors for mobile games.
The article 2 Reasons to Avoid Zynga, 2 Companies to Buy originally appeared on Fool.com and is written by Chris Lau.
Chris Lau has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. Chris 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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