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Zynga Shares Drop: A Reason to Panic?

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Shares of Zynga Inc plunged 9.17% ($0.30) to close at $2.97 on June 5, 2014 following cautious comments from its Chief Executive Officer (CEO), Don Mattrick about the company’s future growth prospects.

In a recent conference, Zynga’s CEO failed to give any visibility on the company’s profit earning potential. Zynga has reported loss the last four quarters. Moreover, he also declined to provide any details on the long term outlook and remained tight-lipped about the future product pipeline of the company.

Since Don Mattrick became the CEO of Zynga three high-profile senior executives left the organization. Also, earlier this year in April, 2014 the Chief Product Officer (CPO) Mark Pincus, exited his services from all operational duties at Zynga. Pincus had led the company to fame and glory so his exit is considered to be a huge blow for the company.

However, Zynga remained tight-lipped regarding the reason for the exit of these senior executives. The pessimistic approach of the CEO coupled with the news of the exit of the senior management has shaken the confidence of the investors to a great extent.

Zynga has had a rough time since it went public at the end of 2011, including multiple rounds of layoffs, ill-considered acquisitions, and a soured relationship with Facebook (FB - Free Report) .

In 2011, Zynga debuted at $10.00 but now trades at $2.97. The decline in share price can be attributed to its failure to respond to a market shift towards games played on smartphones. The company has been trying to boost its competitive position in the mobile gaming segment through the launch of mobile games for Apple’s (AAPL - Free Report) iOS platform.
Although, increased competition from the likes of Electronic Arts (EA - Free Report) remain a major headwind going forward yet we believe that Zynga’s innovative product pipeline and its dominant position in the social and gaming sector will help it in achieving robust growth in the near term.

Currently, Zynga has a Zacks Rank # 3 (Hold).

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