U.S. stocks started the second half of the year off on a positive note, as the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average gained 0.5% and 0.4%, respectively.
Investors may have been buoyed by two positive data points this morning. The Institute for Supply Management reported that the manufacturing sector expanded last month, following a month of contraction. In addition, the Commerce Department said that construction spending was close to a four-year high in May.
Those data should provide some succor to investors who fear that the Fed’s plan to begin reducing its monthly bond purchases (“quantitative easing”) later this year is premature. Of course, a much more visible gauge of the economy’s strength is scheduled for later this week: Friday’s June employment report.
Consistent with the day’s stock price gains, the CBOE Volatility Index (VIX), Wall Street’s “fear index,” fell 2.9% — the fifth consecutive day during which it has fallen or remained unchanged. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Zynga harvests a new CEO
Out with the old, in with the new! Social game developer Zynga Inc (NASDAQ:ZNGA) is demoting its CEO, the colorful Marc Pinkus, who becomes chief product officer (as an aside, there are simply too many “chiefs” at U.S. companies!). Pincus will remain chairman of the board. As a replacement, Zynga is bringing on Don Mattrick, who was president of Microsoft’s Interactive Entertainment Business, where he was responsible for the Xbox franchise.
This leadership reshuffle is reminiscent of Andrew Mason’s departure from the top of another product of the social networking bubble, Groupon Inc (NASDAQ:GRPN), although the latter lacked the foresight to simultaneously bring in a high-quality replacement. As the following chart, both companies have inflicted similar carnage on their investors, starting on Zynga Inc (NASDAQ:ZNGA)’s first day of trading, Dec. 16, 2011:
I don’t doubt that Mattrick is a talented and experienced executive — in many ways, he’s an ideal hire for the role. However, I question whether he can reverse the tide for Zynga Inc (NASDAQ:ZNGA), faced, as he is, with a business that looks largely ephemeral. I’m certain there is a durable market of some size for social networking games. The trouble is, it’s difficult to say what size that is and whether it can support Zynga’s current valuation (we already know it can’t support the valuation the company achieved early on in its life as a public company.)
Today’s news is favorable for Zynga Inc (NASDAQ:ZNGA), but investors who bid the shares up 10% are making a long-shot bet and the stock isn’t anywhere near cheap enough to justify that.
The article Zynga’s 10% Pop: A Triumph of Hope Over Reason originally appeared on Fool.com.
Fool contributor Alex Dumortier, CFA and The Motley Fool have no position in any stocks mentioned. You can follow Alex on LinkedIn.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
