Zynga Inc (ZNGA) More A Speculation Than An Investment

Zynga Inc (ZNGA) More A Speculation Than An Investment

Zynga Inc (NASDAQ:ZNGA) has turned into more of a speculative play rather than a position to maintain from an investment point of view. The same thoughts were echoed by investors when the social game maker decided to shut down OMGPOP.

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Zynga Inc (ZNGA) More A Speculation Than An Investment

Zynga left investors skeptical

 Zynga Inc (NASDAQ:ZNGA) left many investors skeptical on the stock when it abandoned its real money gaming plan in the United States, which otherwise was a potential revenue generator, says a Nasdaq report from Martin Tillier.

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Zynga is struggling to maintain its profitability streak, which is really unfortunate considering many of its games were very popular in the past. It is a Herculean task to generate revenue in the gaming business as users mostly play the free version of the game. For a while Zynga performed well, producing $150-$175 million per quarter in revenue; however, profit is something of a concern.

Bullish argument for Zynga

Among those who are bullish on Zynga Inc (NASDAQ:ZNGA) Michael Pachter, research analyst at Wedbush Securities is worth noticing. The analyst gives an Outperform rating to the stock with a price target of $4.25. Pachter suggests that there is hardly any chance of takeover unless the stock surges significantly. Pachter rests his theory on the premise that the new CEO, Don Mattrick, who joined from Microsoft Corporation (NASDAQ:MSFT) in July will devise a successful turnaround strategy. Job cuts have already been announced, and the target is to bring down the cost further while expanding to other platforms apart from being just a social based company. Pachter said that Don Mattrick will correct the staffing level, and will once again focus on producing social, puzzle/casual and mid-core/PvP games instead of social only.

 On the other hand, Paul Thelon, founder and CEO of Big Fish Games marked Zynga as a speculative bet right now by saying, “The bull case is they are one “candy crush saga” away from doubling their revenue and they will have many at bats in the coming years.”

New launches may create interest, but profits not guaranteed

From a trading perspective, Zynga Inc (NASDAQ:ZNGA) will for sure give traders some opportunities in the coming weeks and months. As has been noted before, every time the game maker launches something, it is surrounded by optimism and hype, and buyers will line up for the stock. However, the popularity of a game is not a guarantee of profits.

Zynga Inc (NASDAQ:ZNGA) as of now does not look like a stable stock to buy. A bullish case for the stock could exist if restructuring and staffing efforts by the new CEO create the catalyst much needed by the struggling game maker.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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