In the 3 days following Don Mattrick's accession as Zynga's (ZNGA) new CEO, more than 177 articles about Mattrick were published on Yahoo Finance and numerous other sites. It would be superfluous to expound further upon his character, credentials, or accomplishments. We need to focus our attention back to Zynga's key fundamentals, dominant metrics, and strategic initiatives engineered by Pincus, the latest of which is recruiting his own replacement, Don Mattrick.
- No long term debt.
- Annual revenue $1.22 billion.
- Q1 cash, cash equivalents and marketable securities were approximately $1.67 billion as of March 31, 2013.
- Zynga has repurchased approximately 6 million shares for $14.3 million since the inception of the repurchase program. The remaining authorized amount of stock repurchases that may be made under this plan was approximately $186 million as of March 31, 2013.
- Zynga's hourly revenue is a staggering $136,845.00.
Recently, media pundits have been playing fast and loose with King's and Zynga's metrics, attempting to create the illusion that King has somehow overtaken Zynga as a company. Consider the following metrics.
King has been developing games since 2003 (10 years) and has approximately 190 million monthly players or MAU (Monthly Active Users). Zynga has been developing games since 2007 (6 years) and has over 253 million month average users, MAU. When you consider that Zynga has accomplished more in 6 years than King has in 10 years, and the fact that Zynga is reaching 33% more MAU than King, it becomes very clear that Zynga's metrics are superior. So, why is King being hyped?
King is reportedly pursuing JPMorgan (JPM) and other bankers to underwrite their IPO. King is being hyped as a "better than Zynga" IPO, but do the metrics support the hype? On the contrary, the facts are truly indisputable. When it comes to the social games space, King is not king, Zynga is king.
King's latest game "Candy Crush" has risen to the number one position on Facebook, but only after an expensive and extensive TV and media advertising campaign. Inquiring minds will ask, did Candy Crush's number one ranking result from an infectious viral wave of referrals, or is its ranking the result of an intensive advertising blitz?" That latter seems more likely than not.
Listed below are 8 strategic initiatives that are responsible for the turnaround at Zynga.
- John Doerr was recently added to Zynga's board. He is a general partner at venture capital firm Kleiner Perkins Caufield & Byers. Doerr is no stranger in building successful companies and providing leadership. Look at the world's largest and most successful companies and you will find John Doeer. He backed Larry Page, Sergey Brin and Eric Schmidt of Google (GOOG); Jeff Bezos of Amazon (AMZN); Scott Cook and Bill Campbell of Intuit (INTU); and Mark Pincus of Zynga. Doerr also sits on Google's board and a number of other tech companies.
- Ellen Siminoff, former Yahoo (YHOO) executive, was added as Zynga's first female director. Her background as CEO of Shmoop, a digital education company, has led some to speculate we could see Zynga moving into educational gaming.
- Pincus sets a new tone for Zynga's management and forces COO John Schappert out.
- Zynga launches mobile gaming and real-money gaming initiatives to create new revenue streams.
- Pincus determines too many employees do too little work. Pincus initiates deep cost cutting layoffs - 520 employees let go.
- Pincus concludes Zynga needs new leadership in the CEO's position and resigns to make room for the number one man in the gaming sector, Don Mattrick.
- Pincus refocus on being chief product officer and chairman.
- Zynga pays off $100 million debt while keeping cash level high, $1.27 billion.
Facebook And Zynga Launch Real-Money Gaming
When Sean Ryan, head of Zynga's game partnerships at Facebook (FB), spoke to attendees at the Barcelona, Spain conference last week, he laid out a win-win plan for both companies. Zynga's Facebook real-money version of "Zynga Plus Poker" and "Zynga Plus Casino" will be available within a month on Facebook in the UK. The mobile versions are expected to follow soon. This is huge for Zynga in terms of new revenue and stimulating social conversations across Facebook's platform as friends boast about their winnings. Imagine when someone hits the jackpot; it is sure to go viral, attracting thousands of jackpot seeking friends to Zynga!
"Zynga Plus Casino" offers over 160 real money games including Farmville Slots, Blackjack, Video Poker, Roulette, and more. Players can win jackpot prizes reaching over £1,000,000. As mentioned in an article I wrote in April 2013, these games were also released a few months early in the UK through a partnership with Bwin.Party, PLC, a digital entertainment company. The Facebook launch is phase 2 of Zynga's mission to dominate real-money social gaming.
"Zynga Plus Poker" is a real-money game offering a wide variety of cash games and tournaments. Winners share millions in real-money prizes every week! You can learn about the game and watch video tutorials before you play. With over 30 million MAU on Facebook in the UK these real-money games could generate millions in new revenue.
Technical Support and Resistance
From a technical perspective Zynga has been trading between the $2.50 to $3.50 range for the past few months. When you factor in the deep cost cutting measures Pincus initiated, real-money gaming on Facebook, $1.67 billion cash and equivalents, and the addition of CEO Don Mattrick, I believe Zynga will easily fill the gap down and move to the $4.50 technical resistance level and possibly higher to $5.00. The chart below clearly shows the $4.56 resistance level is where the real battle to move higher begins.
CEO Mattrick Views The Zynga Revolution As Just Getting Started
Zynga's New CEO, Don Mattrick, offered the following perspective about Zynga and its founding CEO.
"In its short history, Zynga has redefined entertainment and brought social gaming to the mainstream. More than 1 billion people across web and mobile have installed Zynga games, and franchises like FarmVille and Words With Friends have become a part of people's daily lives," said Mattrick. "I joined Zynga because I believe that Mark's pioneering vision and mission to connect the world through games is just getting started. Zynga is a great business that has yet to realize its full potential. I'm proud to partner with Mark to deliver high-quality, fun, social games wherever people want to play."
Zacks Investment Research upgraded Zynga to a "Strong Buy" on Thursday July 11, 2013.
The recent top-level management change is the primary factor behind the upgrade. In a surprising move, Zynga hired Don Mattrick, ex-head of Microsoft's Xbox division, as the chief executive officer ("CEO").
Other Investment Ideas In The Gaming Sector You May Want To Consider
Advanced Micro Devices (AMD) price target was raised to $6.00 by Bank of America (BAC) on news that AMD will be supplying the CPUs for nearly every new console player coming this fall. Game developers and distributors like Majesco (COOL), Electronic Arts (EA), and Activision (ATVI) will all benefit from this agreement. These companies have been waiting to see the architecture of the new consoles before moving forward with compatible new game releases.
AMD, which managed to put processors in every new console, including the Nintendo Wii U, the PlayStation 4, and the Xbox One. If you buy any new game console this holiday, you'll be helping to fill AMD's depleted coffers - but AMD's sweep could have far more significance than that. The company's dominance in next-gen consoles could actually make PC gaming more relevant than it's been in ages.
Majesco's CEO, Jesse Sutton, whose stock is trading at or below cash on hand, has scaled back the release of new games until more information was available on these next generation of consoles. With the chip maker onboard we could see Majesco began to move higher in anticipation of the new consoles.
We're keeping a very close eye on how the industry is shaping up as new consoles are introduced. We are excited to learn of all the new developments for the new consoles at E3 this week. We're confident in our ability to identify opportunities for Majesco in our family-friendly casual gaming market as we have done many times in the past.
In conclusion, Zynga is on the move, and the gaming sector is heating up. We should see across the board gains as we move closer to the holiday season.