Zynga’s plan to reinstate its former CEO Mark Pincus has led Pacific Crest to maintain its Sector Perform rating on the company. The research firm believes that Zynga is overvalued, and its initial valuation was faulty because it was based on incorrect comparisons.
Postponing games could prove fatal for Zynga
Pincus, who is set to replace current CEO Don Mattrick, will be working as the chief exec for a yearly salary of $1, according to Reuters. The management of Zynga has claimed that the company’s focus will be on investments for the first two quarters of 2015, along with introducing 6-10 games in the second half of this year.
Regarding the company’s prospects, Wilson reckoned that although Zynga is postponing the launch of its products to better their quality, such delays in the past have upset the gaming enthusiasts. The analyst also hinted that the developer of online social games has struggled with the talent issues since its IPO in 2011, and feels that the company needs “to reestablish its developer base.”
No respite in sight
Wilson believes that the success of even one of Zynga’s games can turn things around in the company’s favor by building its cash position. However, Wilson also pointed out that such a possibility does not seem likely as the company’s assets could consume most of its cash reserves. Moreover, the analyst also believes that upcoming games might not lead the firm to its better days, saying, “We are still not confident in Zynga’s ability to launch new, revenue-producing hits.” Contemplating on the future of the social gaming company, the analyst commented that Pacific Crest still doubts that Zynga will regain its momentum.
Zynga has reported losses for some time now. In 2014, Zynga incurred a loss of $226 million along with a decrease in its Non-GAAP revenue to $694 million, in contrast to $1.15 billion recorded in 2012. Pacific Crest expects Zynga to report a loss of $0.01 per share, compared to Zynga’s own prediction of $0.02 per share. Moreover, the launch of Candy Crush by King Entertainment Digital Plc. has given the company a considerable competition in the market.
At around 1 pm EDT on Friday, Zynga shares were up 3.78%, and year to date the stock is down around 10%.