There are few technology stocks that have encountered sharp decline in market sentiment quicker than Zynga Inc. (NASDAQ/ZNGA). Technology stocks in the social media space have had a bumpy ride lately. Market sentiment continues to plummet, as the initial rush into this sector by early investors now appears quite foolish.
The market sentiment is obviously all over the place in these technology stocks. But, for those thinking they’re cheap, I’d say be careful of trying to catch a falling knife. I’ve repeatedly made this warning for many stocks in the past, including Zynga and Groupon, Inc. (NASDAQ/GRPN).
Just recently we learned that Jeff Karp, chief marketing and revenue officer for Zynga, has resigned. This makes the number of senior-level executives who have recently left the company more than half a dozen. This type of mass exodus from the senior management level of any of the technology stocks should worry investors. Obviously, with Zynga near its lows of the year, market sentiment is correct to be negative on the company.
With the decline of over 70% this year alone, Zynga appears to be one of the worst technology stocks in recent memory. As I previously stated, with so many questions about the way management ran the company, market sentiment should have been cautious from the beginning.
Technology stocks that encounter this kind of situation ultimately end up having extremely low morale amongst any of the employees who stayed. This essentially means that the best and brightest leave to better companies, while those who stay with the company try to stop the bleeding. Frankly, I think market sentiment should and will remain at extremely low levels for a long time. Technology stocks can rebound, however I don’t see any reason for this stock to do so. Nothing I’ve seen from its management team indicates that the company has a strategy to regain leadership in the market.
Chart courtesy of www.StockCharts.com
Zynga is a good example of why you should not try to catch a falling knife, as market sentiment continues to get worse. While some might have thought that the low was made in July, this stock was susceptible to even more selling. The negative market sentiment continued, and the selling did, in fact, materialize.
I would strongly urge caution for anyone even thinking of investing in this company. I don’t gamble with my money; I allocate funds based on my analysis for the future prospects of the company. With so many technology stocks offering significantly higher levels of potential growth, I don’t see why anyone would invest in this company. I am not alone in my observations, as market sentiment shares this negative viewpoint.