More Upside for Zynga Stock?
Zynga Inc (NASDAQ:ZNGA) stock could trade as high as $5.00, according to some analysts. (Source: “Price Target Update Zynga Inc. (NASDAQ:ZNGA),” Small Cap Wired, March 11, 2016.) On the other end of the field, the more pessimistic pundits have a $2.00 target on ZNGA stock. On average, the consensus is $3.02, which represents a 40%–50% potential upside, given the current $2.21 share price.
Investors welcomed new Zynga CEO Frank Gibeau, who has more than 20 years’ experience at Electronic Arts Inc. (NASDAQ:EA). Gibeau will go after specific gaming markets, while capping costs. (Source: “Zynga shares spike after company names new CEO,” Phys.org, March 2, 2016; http://phys.org/news/2016-03-zynga-spike-company-ceo.html.)
Zynga’s games are popular and many of them have become cultural phenomena. FarmVille and Mafia Wars, for instance, are among the best-known and most-played games in the world. However, Zynga cannot grow on its past laurels alone. It needs new life. Gibeau is the right person to guide Zynga on the path to recovery.
The executive transition for all concerned at Zynga will be smooth. Frank Gibeau is not dropping into his new CEO role from out of the blue. Gibeau joined Zynga’s Board of Directors in the summer of 2015. Meanwhile, Pincus, who founded Zynga in 2007, will retain the majority of voting rights. He will serve as executive chairman of the board and work with a specialized team on new products.
The other familiar aspect of the transition is that in July 2013, CEO Don Mattrick, also a former Electronic Arts executive, took over from Pincus. He was then called to the rescue in April 2015 as Mattrick’s recovery plan failed to bear its desired fruits. Gibeau may have the right recipe this time.
A big part of Mattrick’s difficulties owed to Zynga’s strained financial situation. The company could not invest in developing as many new products—and good ones, at that—as it need to fend off growing competition. To achieve this, Pincus has refocused the company’s development strategy around sound values as FarmVille, Zynga Poker, or Words With Friends. He also focused on action and strategy games, a very popular segment, but new to Zynga.
Pincus also continued the company’s restructuring. He cut staff by 18%. The number of employees is now less than 1,700.
Zynga has also adopted humbler real estate ambitions. From putting its headquarters up for sale, Zynga could fetch $530 million, leaving a healthy profit. In 2012, Zynga paid about $200 million for the property.
Now, the company could either move to a more modest and smaller space, given its reduced staff size, or rent out the facility it occupies now from the new owner. (Source: “Zynga to Put Headquarters Building in San Francisco on the Market,” The Registry, February 3, 2016.)
By freeing up cash, the company can invest in much needed new product development. The dwindling user numbers are a direct result of Zynga’s failure to launch new games over the past few years.