Has Zynga Stock Bottomed?
Despite its poor earnings record, Zynga Inc (NASDAQ:ZNGA) has the potential to deliver rewards for patient investors, especially after the company took a significant first step in this direction. Beset by financial difficulties, Zynga stock has seen a 3.5% rebound on Wall Street thanks to a fresh infusion of cash to the company’s coffers.
The best part is that it is not a refinancing or a loan. Zynga will simply move to a humbler main office, as it is selling the current one for a price that could exceed $530 million. Exploiting San Francisco real estate is the smartest thing for ZNGA stock to do. Since the “Farmville” creators first moved to the building on Townsend Street in 2012, property prices have almost tripled in San Francisco.
Zynga can now move ahead with developing the “next Farmville,” something big to regain rebuild investors’ confidence in ZNGA stock. Zynga has two potential hits: “CSR2” and “Dawn of Titans” are two blockbusters out of 10 games Zynga expects to deliver in 2016. These have seen delays due to bigger budgets and employee numbers; however, if players like them, they could generate significant revenue. (Source: “What Will It Take To Turn Zynga Around?” Fortune, February 11, 2016.)
Michael Pachter, analyst for Wedbush Securities, said in a note that the slow pace of development on CSR2 and Dawn of Titans “shows an awareness by the company that it has to restore credibility with gamers—and only a truly well-done, addicting game will do that.” (Source: Ibid.)
Zynga’s property sale will give the gaming company more than a breath of fresh air. Zynga has found out that if you’re going to San Francisco these days, it’s better to have a dollar in your pocket than “a flower in your hair.” Certainly, it has given Zynga stock a boost.
Zynga, famous for its online poker and Farmville games, has suffered a series of disappointing quarterly results. The company has restructured to confront losses, but so far, it hasn’t managed to recover profitability.
The real estate sale should more than make up for the $340 million that Zynga has lost over the last two years. As its gaming audience is also dropping, from 98 million users to 68 million, Zynga is exploring ways to generate cash from its 699 8th Street real office in uber-expensive San Fran.
Zynga would be making a nice little profit, too. Zynga bought the 670,000-square-foot facility for a measly $228 million. (Source: “Zynga to Put Headquarters Building in San Francisco on the Market,” The Registry, February 23, 2016.) At the time, Zynga employed some 3,000 people and needed a lofty space.
Today, the company employs no more than 2,300, as the numbers have dwindled in restructurings. For the latest quarter (ended December 31), Zynga lost $46.9 million, with player numbers dropping “due to the lack of significant new releases.” (Source: “Zynga Looking to Sell Massive HQ, Could Fetch $800 Per Square Foot – Report,” GameSpot, February 24, 2016.)
While Zynga’s gamers don’t know where they’re going to work yet, the company expects to launch 10 new games this year, including the aforementioned key offerings to win back its audience. (Source: Ibid.) That is the good news for ZNGA stock. 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.
Clearly, this is what caused users to drop off and it’s what could save Zynga stock.