Thursday, April 09, 2015

Zynga Inc: Returned CEO Mark Pincus Won’t Help ZNGA Stock

The return of Zynga's co-founder and former CEO Mark Pincus can't help ZNGA stock

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An abrupt end to Don Mattrick’s tenure as CEO of social gaming company Zynga Inc (NASDAQ:ZNGA) was announced earlier this week. After nearly two years in office, Mattrick has stepped down with plans to pursue other challenges in Canada. Taking his place will be co-founder and former Zynga CEO, Mark Pincus.

The real question here is, what actually happened to cause Mattrick to walk away?

Until the news of his departure broke, ZNGA management had made no mention of any plans to replace the CEO, nor had Mattrick revealed an intent to step down.

Originally, Mattrick was brought in because management was confident he could reshape the company — which, at the time was almost entirely dependent on Facebook Inc (NASDAQ:FB) for customers and revenue — into a mobile-centric gaming powerhouse. At that point, Mattrick’s experience as head of the Xbox division at Microsoft Corporation (NASDAQ:MSFT) seemed like a good fit for ZNGA.

Now, not even two years later, Mattrick has jumped ship, and Pincus — who originally stayed on as Zynga’s product chief, but left that role a year ago — has returned to the head of the table. Unfortunately for Pincus (and for ZNGA stock holders), the state of affairs is bleaker than when Pincus first stepped down.

Zynga Is Going Nowhere Fast


During Mattrick’s time as CEO, ZNGA shares climbed from below $3 in July 2013 to a high just short of $6 in March 2014, followed by a steady drop back below $3. The stock has essentially remained flat for more than six months, just in a very volatile way.

Can Pincus breathe new life back into his dying game company? This is the most relevant question for ZNGA shareholders, or those considering an investment, and the answer is simple.

No.

Mark Pincus has history with Zynga, and perhaps even a more earnest desire to see the company succeed. After all, he helped found the company.

However, Pincus stepped aside two years ago because he wasn’t capable of growing a mobile gaming company in a manner that could maximize its potential and longevity. Hence, the hiring of Don Mattrick. Now that Mattrick — who was believed to be the best candidate for turning Zynga into a dominant force in the mobile gaming space — is headed for Canadian waters, ZNGA has essentially been brought back to where it was in the first place.

Unless Pincus’ position as product chief allowed him to gain new insight about how to best manage a mobile gaming company, what hope do ZNGA stockholders have? Pincus couldn’t get the job done the first time, so what has changed for him since then?

In fact, the task of pulling ZNGA out of the muck will likely be even more challenging now, thanks to new debts and less-successful flagship game variations.

Additionally, Mattrick’s tendency to announce “overly aggressive” stock forecasts damaged investor confidence in ZNGA, which will take more than the mere return of the cofounder to restore.

Face it: The return of original Zynga CEO, Mark Pincus, is itself not a powerful enough change to elicit the kind of investor sentiment needed to bring ZNGA stock out of the slide.

The future of Zynga is questionable at best, and at the rate it’s going, it won’t be long before the once-dominant social gaming company falls off the map entirely. The days when flagship games likeFarmVille and Zynga Poker raked in millions of dollars per day are long gone. Now, the company’s flagship sequel, FarmVille 2: Country Escape, pulls in $24,000 per day — a far cry from the seven figures seen just a few short years ago.

Even if Pincus, as the new Zynga CEO, is able to help the company push out a first-rate game in the relatively near future, it’s unlikely that ZNGA will ever again see the kind of popularity and revenue that its former hits garnered. The mobile gaming space is simply too saturated, and the Zynga methodology is old and tired.

Gamers don’t want another recycled version of FarmVille. They’ve grown enough crops already.

Bottom Line


It would take a digital miracle for Mark Pincus to devise a way of putting Zynga back on top of the mobile gaming pyramid. And, sadly, that’s just not in the cards (pun entirely intentional).

For those who may have been considering an investment in the company, don’t waste your money. Current ZNGA stockholders must decide if it’s time to cut their losses and run.

My advice: Sell your farm, pop your bubbles, collect your gems and draw yourself an exit strategy.

Article originally appeared on InvestorPlace (04/09/2015)