Zynga Inc (ZNGA) Investors Have To Live With Pincus

Zynga Inc (ZNGA) Investors Have To Live With Pincus

Zynga Inc (NASDAQ:ZNGA) shareholders have to live with Chief Executive Mark Pincus, despite the social game services company’s deteriorating performance.

Zynga Inc (ZNGA) Investors Have To Live With Pincus

The leading provider of social game services, Zynga Inc (NASDAQ:ZNGA)’s founder and chief executive Mark Pincus still holds 61 percent of the company’s voting power.

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Zynga Shareholders Can’t Take Pincus Out

Zynga Inc (NASDAQ:ZNGA) shareholders can’t remove Mark Pincus, unless he votes himself out, according to Sam Hamadesh, president of PrivCo., a company which researches private companies.

Therese Poletti in her commentary in MarketWatch feels Mark Pincus is firmly locked in place, despite a flurry of missteps causing Zynga Inc (NASDAQ:ZNGA)’s market cap dwindling to $2.4 billion.

Zynga Inc (NASDAQ:ZNGA) came out with an IPO in December 2011. But with the company in the thick of a lot of bad news, its share price fell over 70 percent from its IPO price. Zynga Inc (NASDAQ:ZNGA)’s market cap also fell substantially during this week.

Many analysts and corporate governance experts warned about Zynga Inc (NASDAQ:ZNGA)’s three-class stock ownership structure by which the chief executive would maintain voting control of the company, including the sole ownership of a special Class C stock, that would give him 70 votes for every shares held. Pincus owns 100 percent of the Class C stock and 45 percent of the Class B.

Mark Pincus however got $109.5 million through a buy-back offer from the company, several months before Zynga Inc (NASDAQ:ZNGA) going public, similar to the mechanism adopted by co-founders of Groupon Inc (NASDAQ:GRPN).

However last year, Mark Pincus cut his salary to $1 a year.

The social game services company once catapulted into the superfast revenue growth trajectory, thanks to its popular social games like “FarmVille” and “Mafia Wars”. However, revenue from these games dwindled to $85 million in the first quarter, as the free mobile games are now developed by tiny, nimbler application developers.

Zynga Mobile

Zynga Inc (NASDAQ:ZNGA)’s mobile presence also started deteriorating as the company doesn’t have presence among the top 10 games on Google Play. Zynga Inc (NASDAQ:ZNGA)’s games currently hold 19th position in both Google Store and Apple’s App Store with its “Words with Friends” and “Running with Friends” respectively.

Zynga Inc (NASDAQ:ZNGA)’s dwindling popularity is echoed by an IDC analyst Lewis Ward when he remarked: “Zynga Inc (NASDAQ:ZNGA) has gone from a dominant player to one in a pantheon of game companies”.

Zynga Inc (NASDAQ:ZNGA) still has over $1.67 billion as cash, but its past buy-out of OMGPOP, Inc for $200 million failed with Zynga Inc (NASDAQ:ZNGA)  writing down a part of the deal in a restructuring carried out last October.

The social game services company has also started falling out with Facebook Inc (NASDAQ:FB), which started de-emphasizing Zynga Inc (NASDAQ:ZNGA)’s games over others last November.

Zynga Inc (NASDAQ:ZNGA)’s recent strategy to enter into real-money online gaming market is also prone to regulatory risk.

Recently BAML analysts lowered price target of Zynga Inc (NASDAQ:ZNGA), citing lower estimated poker bookings.

Therese Poletti in her commentary in MarketWatch feels with the most to gain, it would be up to Mark Pincus to turn around the company.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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