Why Zynga Inc. Shares Dove Lower Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zynga (NASDAQ: ZNGA  ) dropped nearly 17% early Thursday following a cautious analyst note, and news of the departure of several more senior executives. 

So what: Yesterday afternoon, Zynga CEO Don Mattrick presented at the Bank of America Merryll Lynch 2014 Global Technology Conference. Following the presentation, however, Sterne Agee analyst Arvind Bhatia -- who currently holds a neutral rating on Zynga shares -- noted that Mattrick seemed decidedly less upbeat than usual regarding Zynga's turnaround. In addition, Bhatia voiced concerns that Mattrick only provided limited visibility into Zynga's product pipeline.

What's more, some investors are concerned about reports that three more Zynga executives just left the company, including its former head of acquisitions,Terence Fund, former senior vice president of mobile and Words With Friends lead Travis Boatman, and former studio president and head of Zynga's Ville series of games, Steve Chiang. In short, this marks a complete turnover of Zynga's senior management team since Mattrick arrived last July.

Now what: Zynga declined to comment directly on the latest departures, so we can't tell exactly why they left. But I'm not reading too much into it, as this could have been a direct result of Mattrick's recent efforts to reshape the company.

I've long made clear my preference of avoiding shares of Zynga altogether, especially given its history of shareholder unfriendly conduct, bad economics, and the harder-to-quantify threat of survivor guilt following significant layoffs -- the last of which were ironically announced simultaneously with Zynga's $527 million acquisition of Natural Motion in February. In the end, whether today's latest concerns hold any merit or not, I'm still not interested in buying Zynga stock.

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Comments from our Foolish Readers

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  • Report this Comment On June 05, 2014, at 4:15 PM, Caligula wrote:

    The game PRODUCERS don't matter, but if they lost the senior engineers on each project, they're done.

  • Report this Comment On June 05, 2014, at 4:54 PM, z06forum wrote:

    Removing the people who could not get it done nor had the knowelge to help before is a good thing. Don needs a clean slate and an energy to win. I am comforted that the Long time Collegues who understand the work ethic and Tempo that Don brings to the company are flocking to Don's side as this transformation is taking place. It is now always easy to agree or understand the depths of the inner happnenings of a company.

    Don has no reason to Fluff anything at this point. His job is to build a company. Any analyist who has an issue with no knowing the product pipeline has no clue or business being an analyst for Mobile gaming. The fragmented industry so far is all about copy cat games. Don is smart enough not to tip his companys hand just to satisfy some analyist for a qtr. I think this is the right thing to do. So funny that people in general bash the Military for announcing their doings while at the same time bash ZNGA for not. These games are IP and the way they work, look and feel are Trade secrets until launch. It takes months to develop and would not do their Marketing teams, innovaters or developers any justice to give it away prior to the lanch. Like I said, these Ancient Analysts just dont get it. Don has stopped the bleeding and begun to increase mettricks, this trend will continue with core games and accelerate as new Franchises reach consumers. Be patient and you will be with a winner.

  • Report this Comment On June 06, 2014, at 5:32 AM, VivaZynga wrote:

    z06forum has responded eloquently and accurately to this negative article.

    Sterne Agee analyst Arvind Bhatia is the same idiot who was posting repeated negative articles about Zynga, a few days before the 4th quarter earning results and right before Zynga shares moved up to $5.85!

    So the choice is yours: either trust in the ability of someone who has spent 2/3 of his life in innovating games or so self claimed analysts - with unknown level of education and motives. Needless to say the fools at fools.com have also done their share of publishing negative comments based on the same rationals as Bahatia's.

  • Report this Comment On June 06, 2014, at 12:32 PM, TMFSymington wrote:

    @VivaZynga, For the record, Bhatia's credentials -- which are impressive -- aren't hard to find (hit up Google and check out Sterne Agee's Interactive Entertainment profile).

    Also, keep in mind even before yesterday's drop, ZNGA traded in the low-to-mid $3 range.

    Still, note I made it clear above "I'm not reading much into" yesterday's "negative" news, esp. considering the executive departures were likely part of Mattrick's plans, anyway. Per my links -- and keeping in mind I have no position in ZNGA stock -- I prefer to avoid the company for completely different reasons.

    Best,

    Steve (TMFSymington)

  • Report this Comment On June 06, 2014, at 4:50 PM, VivaZynga wrote:

    Steve, as I had indicated in my previous comment Bhatia published several negative articles driving the shares of Zynga down prior to the 4th quarter earning release, bur after the earning release shares moved up sharply and eventually hit $5.85! Almost all of his predictions, late in January, were inaccurate:

    "He believes that expectations of a $0.04 per share loss in ZNGA's fourth quarter are optimistic, noting at the same time that the company is likely to guide first-quarter expectations lower. Specifically, Sterne Agee believes that first-quarter bookings will fall to $116 million with EBITDA at negative $17.2 million - a large change from bookings at $137 million and EBITDA of negative $3.5 million."

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