Zynga Inc (NASDAQ:ZNGA) Going Through Hard Times
Zynga Inc (NASDAQ:ZNGA) were having something of a good year and when you look back in time you will see that from the beginning of January to the end of May the ticker has been on the rise gaining as much as 44%. Will the positive trend continue, though?
Well, on June 3 there was something of a stumbling block. It’s sometimes amazing how a single press release could turn things upside down. They opened the first trading session of the month at $3.41 and were keeping it pretty steady throughout the morning. However, around 2PM a press release came out that changed everything. ZNGA announced that because of some cost-cutting measures, they are forced to lay off around 18% of their workforce. Apparently, the shareholders were not impressed with the news and a quick look at the intraday chart from June 3 reveals a massive vertical drop. By the end of the session ZNGA stood around 12% below Friday’s close and the daily volume had jumped to 64 million shares. On Tuesday, things looked a bit calmer and while the volume was still pretty high, they managed to claw back a couple of percent. On Wednesday, they dropped by a further 5.9% and yesterday things remained pretty much level.
We read through some of the message boards dedicated to ZNGA and we can see that the negative opinions at the moment outweigh the positive ones and it would seem that the reasons provided for the massive lay off aren’t enough to persuade long-term investors. That said, their negativism also might have something to do with the fact that this is not the first time they have got disappointed with the people who run ZNGA.
Back in April 2012, they got angry with the management team when some insiders sold 43 million ZNGA shares at around $12 making quite a lot of quick and easy money. A couple of months later, the value was already around $3 per share and, as you can see, it got even lower by the start of 2013. But what about the future?
Well, ZNGA‘s success is largely dependent on them being able to adapt to the new trends in the social gaming business. We can see that the booming sales of smartphones and tablets over the last couple of years have changed the rules somewhat and if ZNGA are to remain afloat, they will need to keep up.
They are also putting high hopes on their joint venture with Bwin.party Digital Entertainment Plc (LON:BPTY). In April the two companies launched a new poker platform in which people play with real money. Some investors and analysts don’t seem to be happy with this move mainly because the gaming platform is currently available only in the UK and also because of the many established players in the online poker industry. Still, if Zynga could prove that the game is profitable, some disbelievers will be converted.
Yet, the most important thing for ZNGA right now are the effects of the cost-cutting measures. If they can’t set things straight after laying off around a fifth of their workforce, the risk of people completely losing faith in the management team is quite real, indeed.
On the plus side, ZNGA still have the advantage of having a relatively solid balance sheet and we can see that while the revenues for Q1 of 2013 have shrunk compared to the ones for the same period in 2012, they have managed to achieve $4.1 million in net income. By contrast, Q1 of 2012 resulted in an $85 million net loss. As you can see, however, that hasn’t made much of a difference to the way shareholders feel at the moment.
