Zynga Inc (NASDAQ:ZNGA) is up 74% so far this year, putting it ahead of a market that is itself rallying, but investors who have held on to the stock all year have had certainly proven their resolve as the price had a level of volatility we normally associate with penny stocks, reports Dan Burrows at InvestorPlace.
In fairness, Zynga Inc (NASDAQ:ZNGA) had plenty of room to recover, having dropped from about $15 to $2.50 over the course of 2012, and it still hasn’t risen above $5, but when a media favorite (Zynga developed the iconic Facebook Inc (NASDAQ:FB) game Farmville) has such low valuation news items can push its stock price up or down pretty rapidly.
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Zynga’s stock price has been news sensitive all year
And there’s been plenty of interesting news for investors to get excited (or depressed) about in 2013. Earnings beat expectations multiple times, but when the news is coupled with the company lowering its outlook or slashing its workforce the enthusiasm doesn’t last long. A rumored Yahoo acquisition pushed stock prices up for a bit, but they fell again when the rumor turned out to be false. Zynga suffered with the general transition from PCs to mobile computing, which included the move away from social gaming on Facebook Inc (NASDAQ:FB) to apps like Candy Crush and Angry Birds, but it has also moved into mobile gambling with some success. The possibility of legalized online gaming in the US, even if unlikely, is a big upside risk for Zynga.
Zynga focusing on fundamentals
But the bottom line is that Zynga Inc (NASDAQ:ZNGA) has been cutting costs and currently has a strong balance sheet. A revamped management team has focused on improving efficiency at the company, and new COO Clive Downie has an extensive background in the mobile sector, giving many analysts greater confidence in the company’s prospects.
No one expects Zynga Inc (NASDAQ:ZNGA) to get back to $15 per share, at least not soon, and it’s a good example of a tech company whose initial IPO was over-hyped. But instead of fading away into oblivion after the initial hype faded it has focused on fundamentals and stabilized at a lower, more realistic valuation. Even if it has more variance than other stocks, BMO Capital Market’s ‘market perform’ rating seems sound over the course of next year.