Is Zynga Inc About To Be Delisted?

Zynga Inc (NASDAQ: ZNGA  ) may have successfully reelected each of its seven proposed board members at its annual shareholder meeting last Wednesday. But that doesn't mean everybody wanted to stick around.

Zynga is facing increasing competition from larger gaming companies like Activision Blizzard

Credit: Zynga

To be sure, two of Zynga's nine board members stepped down last week, including DreamWorks CEO Jeffrey Katzenberg, and early Zynga investor and LinkedIn co-founder Reid Hoffman. As a result, a Zynga SEC filing dated last Friday reveals it's no longer compliant with a NASDAQ listing rule requiring any company's board be comprised of a majority of independent directors.

But don't for a second think Zynga will be delisted from the popular exchange -- at least, not anytime soon. Zynga was given 45 days, or until July 27 2014, to submit a plan to NASDAQ outlining how it intends to regain compliance. Then, assuming NASDAQ accepts that plan, it can grant Zynga an extension of 180 days from the date of its original notification of non-compliance -- or until December 9, 2014 -- to implement it.

What's more, keep in mind the departures of Katzenberg and Hoffman weren't a big surprise to Zynga. In fact, Zynga not only disclosed in its April 29 proxy statement that both men had decided not to stand for reelection this year, but also stated it was already working to identify their replacements. 

In short, Zynga knew this day would come, and it's highly unlikely they won't be able to find suitable board members to regain compliance with the NASDAQ in time to avoid delisting.

But does that mean you should buy the stock? Not necessarily.

Sure, Zynga CEO Don Mattrick has worked hard to right the struggling gaming specialist's wrongs since he took the helm last July. And Mattrick's efforts culminated with the complete turnover of all senior management following the departure of three more high-level executives less than two weeks ago.

At the same time, however, the market drove shares down earlier this month given Mattrick's uncharacteristically downbeat tone at the Bank of America Merrill Lynch 2014 Global Technology Conference, as well a general lack of visibility into Zynga's product pipeline for the second half of this year. The former is particularly surprising considering Zynga's board also just approved Mattrick's incredible $57.8 million pay package for this year, making him the second-highest paid CEO in the Bay Area behind only Larry Ellison. No matter how monumental the task at hand, that was an offer I noted last year he simply couldn't refuse.

Moreover, delisting or not, this is just the latest in a long string of shareholder-unfriendly actions from Zynga. This also isn't the only reason I prefer to avoid investing in companies primarily relying on continuously pumping out and monetize games in the free-to-play segment. Other reasons for Zynga in particular include a history of bad economics, survivor guilt in the face of recent layoffs, and the threat of enormous competitors like Activision Blizzard (NASDAQ: ATVI  ) moving into the space to supplement their already enormous revenue and earnings streams.

A better way to play
In the end, that's why I still think investors who want exposure to the gaming sector would do better to avoid Zynga. Instead, stick with proven gaming industry stalwarts like Activision Blizzard. After all, Activision Blizzard is not only riding a wave of momentum after its blockbuster first-quarter results, but pays investors a nice $0.20 per share quarterly dividend while you watch it dominate the market.

And the smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2014, at 2:20 PM, z06forum wrote:

    wondering why almost every author wants you to sell this company XYZ and -go all in- on this company ABC.

    Never do they provide a rational approach.

    I would recomend that you have 15-20% of your portfolio in a social Gaming fund consisting of

    40% AVT, 10% in GLUU, 35% in ZNGA, 5% in King and 10% in cash and explain the dividend and dominance of AVTI, The potential for huge upside in ZNGA, Stability in King and some upside in Gluu and a bit of cash to buy on any dips.

    Znyg is not out of the game by any means.

  • Report this Comment On June 18, 2014, at 8:56 AM, bkdev wrote:

    When CEO gets ZNGA share price cut by another

    50% perhaps the new board will double his pay package and so on till its market cap comes to zero. Good for shorts.

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Steve Symington

Technology and consumer goods specialist for the Fool. Steve looks for responsible businesses which positively shape our lives. Then, he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

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