Zynga Inc (ZNGA) Hasn’t Used 90 Percent Of Funds Allotted To Buybacks

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Zynga Inc (NASDAQ:ZNGA) has a solid cash pile of $1.1 billion as of the September quarter. Earlier this year, Zynga Inc (NASDAQ:ZNGA) appointed Don Mattrick as its chief executive. The company awarded him a cash gift of $5 million on joining. He will receive a cash bonus of up to $2 million, along with $1 million in annual salary. Don Mattrick also received $11.3 million worth of Zynga Inc (NASDAQ:ZNGA) shares to make up for the stock his previous employer Microsoft Corporation (NASDAQ:MSFT) would have given him. Mattrick was also given 1.8 million restricted stock units, plus an option to purchase 7.4 million shares of the company.

Zynga Inc (ZNGA) Hasn't Used 90 Percent Of Funds Allotted To Buybacks

Zynga Inc (NASDAQ:ZNGA) paid off $100 million in debt during the September quarter. The company now has zero debt. It has also closed some offices and fired 520 employees. Reduction in workforce has eliminated $14.3 million in stock-based compensation commitments. Zynga Inc (NASDAQ:ZNGA) committed to issue $21.3 million in stock and options after hiring Don Mattrick. The San Francisco-based company recently issued another $11 million worth of stocks and options.

Why is Zynga so skeptical of buybacks?

The consistent dilution of the stock highlights the importance of its share buyback program. In October 2012, Zynga Inc (NASDAQ:ZNGA) approved to spend $200 million on share repurchases. Unfortunately, the company has spent just $21.1 million of that on buybacks. And most of that was spent last year. This year, Zynga Inc (NASDAQ:ZNGA) purchased only 3.4 million shares for $9.3 million at an average price of $2.74. It raises a serious question: why isn’t the company buying its shares when they’re low?

Zynga’s buyback history

In 2011, Zynga Inc (NASDAQ:ZNGA) had repurchased 27.5 million shares at $10.32 apiece under the previous program. A comparison of the two buybacks shows that Zynga Inc (NASDAQ:ZNGA) has used its second program very sparingly. That’s a bit surprising, given the stock is trading far below the $10.32 level when it spent $283.8 million to buy 27.5 million shares. Today, it can the same amount of shares for just $108 million.

Zynga Inc (NASDAQ:ZNGA) still has immense growth opportunities despite rapidly changing gaming landscape. The company needs to use its capital resources wisely to boost shareholder value. Buying back the stock at low levels could prove beneficial in the long run.

Zynga Inc (NASDAQ:ZNGA) shares plunged 2.95% to close the session at $3.95 on Friday.

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