After replacing the founding CEO in July with a star executive, Don Mattrick, from Microsoft, the best way to describe the year for Zynga (NASDAQ:ZNGA) has been one of little-to-nothing in the way of external progress. The maker of social games for Facebook (NASDAQ:FB) and mobile devices was able to stop the slide in quarterly revenue and, hence, share price, but Zynga has provided very little in the way of progress to external investors.
At this point, investors must stick with new management and the hoped turnaround, or take the recent stock gains and run. Remember, Glu Mobile (NASDAQ:GLUU) took roughly a year to complete its turnaround. Glu Mobile now sits with a strong game release lineup and a new platform for monetizing those games with tournaments and rewards. In a more interesting move, Glu Mobile even ported the popular Deer Hunter 2014 game from mobile to Facebook, providing solid evidence that good games can prosper on any platform.
Lack of vision
After surging to yearly highs over $4.50 prior to the holidays, Zynga has crashed in the last couple of weeks due to a lack of news and vision on 2014 prospects. The company has been very tight-lipped about new games, but investors shouldn't construe the lack information for a lack of internal progress. Some of the best news occurs when investors aren't aware of progress being made behind the scenes, not to mention that keeping competition in the dark can provide a huge advantage.
The company's new CEO has an impressive resume, turning Xbox into a huge winner for Microsoft, and the company has several sound franchises in Zynga Poker, Farmville, and Words with Friends. Most importantly, Mattrick has $1.5 billion worth of reasons (in the form of cash for investors) to not lose interest.
Mattrick provided five pillars for the company to focus on going forward. The major ones, areas in which the company is still struggling, are creating new hits and moving to mobile. The sustaining top franchises, fleshing out the Zynga network and driving efficiency, are progressing very nicely. On the upcoming fourth-quarter conference call, investors will be keying in on whether progress is being made on developing new hits.
Near the end of 2012, Glu Mobile made the calculated decision to delay the release of games while improving monetization by developing a games-as-a-service platform, or GASS, called GluOn. The new technology platform allows for improved, more compelling game play via tournaments, leader boards, real-time chat, and player-to-player messaging. Notably, the company recently launched the first game, Eternity Warriors 3, with the full suite of GluOn features.
Initially, investors were disappointed with game delays, causing the stock to spend most of the last year in the dumps. Now, however, the successful launch of the latest Deer Hunter franchise, and a strong lineup for the first quarter of 2014, has investors lining up for a potentially rewarding year. Similar patience could pay off for Zynga investors.
The move by Glu Mobile to port the successful mobile game, Deer Hunter 2014, to the Facebook platform could be a sign that the platform has a bigger future than expected. For the third quarter of 2013, Facebook grew games revenue by 18% over the same period in 2012.
The first move that Mattrick made was to return the company's focus to the social genre that was successful in the past. Actually, however, the platforms where Zynga does business continue to grow, and the misconception before Mattrick took over was that Zynga needed to flee Facebook for mobile platforms or focus on real-time gaming in order to grow. The problem now is that game developers have released mega hits (like Candy Crush Saga and Hay Day) that took gamers away from Zynga. The Facebook platform isn't the problem -- the lack of new hit games is the problem.
The evidence continues to suggest that the company's new CEO made the correct decision to steer Zynga back toward the social genre. All of the major mobile platforms, including Facebook, continue to provide substantial growth for game developers. Instead of diving into real-money gaming or other areas outside the company's core competency could have taken it completely off track. Now though, similar to Glu Mobile, Zynga must begin delivering on the promise of new mega hits. Mattrick's past game development skills need to start bubbling to the surface, or 2014 will become the year of major consternation for investors. The lack of external evidence is not a major concern yet, but internal progress needs to start materializing for investors to get excited about the future.
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Mark Holder and Stone Fox Capital clients own shares of Glu Mobile and ZYNGA INC and are short shares of Facebook. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.