Zynga Is Making The Right Moves

| About: Zynga (ZNGA)

Zynga (NASDAQ:ZNGA) had an impressive 2013 and the stock gained more than 56%. However, the company is not completely out of the woods at the moment. The online gaming industry is becoming increasingly competitive, and the participants are coming up with new innovative games. Zynga investors are hoping for another good year as the company continues to make the right decisions in its effort to make a turnaround. The efforts on the cost cutting front are going well and it looks like the costs will be further reduced in the next year. Furthermore, it looks like the revenues may also be enhanced with the decision to accept payments with Bitcoin.

Accepting Bitcoin: A Wise Move?

Zynga has recently announced that it will accept Bitcoin as payment to provide its in-game assets and upgrades. Previously, customers could only buy these in-game assets by using their credit/debit cards or PayPal. When it comes to online payments for the shopping, theft is the biggest concern. A number of shoppers are reluctant to share their credit/debit card information online due to the fear of theft. Although the global trend in online shopping will suggest that the online payments have been going well despite this threat, we will all certainly like a more safer way of paying for the things we buy online. Bitcoin helps you achieve that goal to some extent.

Bitcoin and Zynga customers have almost the same demographic characteristics: the users are basically tech-savvy 25-40 years olds with above average income. Bitcoin is becoming popular with the businesses as more and more businesses are accepting the currency. Online dating website OKCupid, Wordpress, and Reddit are already accepting Bitcoin as payment. The latest business to accept Bitcoin as payment is the Sacramento Kings -- the franchise announced that it is now accepting Bitcoin payments inside a team retail store in Sacramento. Furthermore, the Indian Bitcoin operators are also resuming operations. If Bitcoin continues to grow at the same pace, then it will certainly become an important method of payment and Zynga customers may prefer to pay using Bitcoin. It can be beneficial for both Bitcoin and Zynga in the long term.

Efficient Use of Assets

Zynga has announced to lease its 100,000 square feet of its headquarters building located at 650 Townsend Street to Practice Fusion, an electronic medical record provider. This building is a valuable asset of Zynga as it is located close to other leading technological companies including Adobe, Salesforce, Pinterest and Airbnb. The whole area owned by Zynga is 670,000 square feet. The company never really used the complete area and as it has downsized recently, the space need has further decreased. This is a remarkable cost cutting and income generation strategy at the same time. The company is leasing its unused asset to make money. This additional money would grow the other income part of its income statement. This would not only reduce its cost of maintenance but also increase its net profit margin.

The company is looking to shutdown YoVille, a game Zynga bought from Big Viking Games in 2008. The game was due to be shut in March - however, the announcement was met with considerable opposition and users started a petition page to boycott all of Zynga's games. The page got 6,000 signatures in a short space of time, showing that the game was still popular. As a result, Big Viking became interested and contacted Zynga to explore the opportunity to buy back the game. YoVille was one of the top three games for the company and contributed significantly towards the revenues. However, more recently, the game has not been doing well. Keeping in mind the new focused approach by Zynga, I believe the sale will be a good decision. The sale to Big Viking Games will bring in some cash which will certainly help the balance sheet of the company.


The problem with Zynga has been the lack of innovation. The move towards the mobile devices has certainly helped the company; however, the company will have to bring back its users towards its games. Recently, Zynga users have been spending less time on its games and daily active users have fallen by as much as 50% in the past year. The company needs to bring new games that can compete with hit games like Candy Crush Saga. Zynga is doing well on the mobile front, and it is certainly an important segment for future growth. However, the user base will grow only if the company introduces some new, more attractive titles.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.