Baa…Zynga?
Zynga Inc (NASDAQ:ZNGA) avoided what could have been a disaster. With its recent earnings report barely beating loss estimates, coupled with hundreds of layoffs looming, a huge management change and restructuring plan, the layman would run for cover and sell. However, there are a few glimmers of hope that tell me this company is poised for a turnaround and worth a second look.
Zynga Inc (NASDAQ:ZNGA) posted an adjusted earnings per share loss of $0.01 on revenue of $231 million, beating analysts’ expected net loss of approximately $0.04 per share on revenue of $185 million, according to its recent earnings report with a net loss of $16 million. The user base also took a hit showing the monthly active user, or MAU, count dropping to 187 million, down 39% year over year. Low or negative cash flows and an unstable stock price round out this grim outlook.
A silver lining?
Now, these stats and figures may scare you. However, there needs to be two thing taken into account before you write Zynga Inc (NASDAQ:ZNGA) off as a product of the social gaming fad. There is a new CEO in town–replacing Mark Pincus is Microsoft Corporation (NASDAQ:MSFT)‘s Xbox guru Don Mattrick.
The man has also been named a “Top Ten Brilliant Technology Visionary” by CNNMoney, and one of the “Smartest People in Tech” by Fortune magazine. With this massive credibility and clout this move can help Zynga Inc (NASDAQ:ZNGA) pull out of the nose dive. This recent earnings report accounts for the time before Mr. Mattrick took the helm, so you can’t pin the negativity and losses on the leadership.
During Mr. Mattrick’s time at Microsoft Corporation (NASDAQ:MSFT), as President of Interactive Entertainment in charge of the development and marketing of the console gaming giant, the Xbox, he is credited with spurring the growth of the Xbox 360 user base from 10 million users to 80 million, developing the sensation of the Kinect motion gaming system and growing the Xbox division into a $2.53 billion success story, a 53% increase from just a year ago.
In fact, the Entertainment and Devices division, which includes Skype, the Xbox One and the Windows smartphone has grown 8% just this last quarter alone and is Microsoft Corporation (NASDAQ:MSFT)’s best bet for continuing to grow into the next few decades. With Microsoft Corporation (NASDAQ:MSFT) losing it’s de facto dominance in the personal computing software market to Apple and other emerging mobile technologies, this division is more important than ever.
The Windows phone has failed to catch on with mobile consumers, with less than 3% of devices in the US market. However, in some emerging international markets, the market share jumps to around 20% of devices and has been projected to do the same domestically. It’s console gaming needs a mobile compliment with the market moving towards more mobile gaming, Microsoft Corporation (NASDAQ:MSFT) should be watching carefully if Zynga Inc (NASDAQ:ZNGA) can pull this one off. If it does, all the pieces are there for Microsoft Corporation (NASDAQ:MSFT) to build on, a platform with the Windows phone, the games with the Xbox and the financial clout of the company.
Zynga’s Bottom Line
This change of command is Zynga’s best hope for a turn around. Already implementing a $25 million cost reduction program and steering Zynga towards mobile gaming, a move that has payed off huge for the like of Facebook recently, Mr. Mattrick’s leadership comes at a pivotal time. The other glimmer that Zynga Inc (NASDAQ:ZNGA) needs to grasp is its recent venture into real money gaming. Zynga recently acquired Spooky Cool Labs, a social casino games provider and has started introducing its ZyngaPlus games in the UK. One downside to this new approach is Zynga has decided not to pursue a license for gaming in the US.
