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Zynga (ZNGA) is one of those equities that I always have on my radar. I like to look at the price movement and am always taken aback by the way that successful companies quickly become unsuccessful companies (BlackBerry (BBRY) is another one).

In one article last June, I noted that the sentiment toward Zynga had become so dismal that there were a number of catalysts to look for that could move ZNGA higher - most notably a shakeup in management. At the same time, I noted that one of the best ways to play the stock, then priced at $2.84, was a January 2014 $2.50 / 3.50 call spread. That contract, which would have cost $0.39, expires this Friday, likely at the full $0.61 per share profit. I don't mean to say all this as a way of pulling the 'I told you so.' Rather, just as a background to my current analysis.

Sterne Agee Commentary Hits Share Price

Last week, Zynga's share price took a dive following commentary from Sterne Agee analyst Arvind Bhatia. Bhatia 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.

But, Sterne Agee wasn't the only brokerage to give some negative views on ZNGA recently. UBS lowered its rating on Zynga from hold to sell - also cutting the price forecast from $4.03 to $3.54, which is where the price closed on Friday.

The stock is likely to move sideways ahead of the February 5 earnings release and conference call.

Look Beyond February 5

If Zynga misses in Q4 2013 and guides down for Q1 2014, the company would have explaining to do since they noted in the Q3 call that the industry sees typically stronger sales in Q4 and Q1 - around holidays and new device activations. Following that set-up, and the stronger-than-expected ad revenue per daily active user, it would for sure be disappointing to see a set-back.

But beyond the immediate earnings release, Zynga shares have room to move higher. And bulls should thank these pessimistic brokerage houses. Sterne Agee noted that Q1 could represent the "bottom" in bookings, leaving full-year estimates for 2014 unchanged - but anyone buying ZNGA shouldn't be investing for next quarter, but rather for the overall turnaround play. The same style of turnaround that helped Groupon (GRPN) rise from the mid-$2 to nearly $11 per share; the same turnaround that saw BBRY gain from below $6 to nearly $10 per share; and that saw HP (HPQ) shoot higher from $12 to $30 per share. Of course, each of these stories was unique, but Zynga has its own turnaround to tell.

In the Q3 2013 conference call, ZNGA's new CEO Don Mattrick outlined the company's five priorities: to "sustain top franchises, create new hits, move to mobile, prove out the Zynga network and drive efficiency." That will not be done overnight - or in a couple of quarters. But, they are making progress.

Mattrick immediately took charge following his start and focused the company outside of the online gambling route - which had been favored by Zynga's Chairman and Founder Mark Pincus. In another organizational move, Mattrick hired Clive Downie, a veteran of Electronic Arts, as the chief operating officer.

With the staff and organizational structure beginning to be in place, Mattrick can institute a long-term strategy. That long-term strategy has to focus more heavily on mobile. In Q3, 65 percent of the company's bookings still relied on Facebook, while just 30 percent, or $46 million, were on mobile. Words with Friends is still the most active mobile game, though the company launched CastleVille Legends in Q3.

And mobile continues to be fertile ground. Roughly 55 percent of all time spent on mobile and 67 percent of time spent on tablets are in gaming. With people spending more and more time with their mobile devices, there will be a lot of money up for grabs.

Financials Strong for Repositioning

Zynga still has a strong balance sheet that will enable it to pivot to new opportunities. The company ended Q3 with $1.5 billion in cash, cash equivalents and marketable securities - equating to $1.85 per share and representing 52 percent of the company's market capitalization as of January 17th's close.

That strong position gives Zynga the opportunity to invest heavily in marketing, something it hinted that it would do in Q4 with new games - and trying to diversify out of the FarmVille, Zynga Poker and Words with Friends franchises.

It also provides a cushion to complete its restructuring and begin to implement Mattrick's full vision. Mattrick, after all, is an industry veteran who last worked at the head of Microsoft's (MSFT) Xbox division. From there, he was rumored to be up for the head job at Electronic Arts (EA) before ZNGA poached him. Given that experience, it is likely that Mattrick has wide berth to make moves.

"Poised for Growth in 2014"

Ultimately, this may be the claim from the Q3 conference call to watch for most. If the company already starts to walk back claims from the Q3 call, the whole-year outlook will be most important to watch - as opposed to the Q1 outlook. Where are bookings headed? How many daily active users will the company have? While profits can be excused, continued erosion of Zynga's market share cannot.

So long as Mattrick stands by his claims to return Zynga to growth in the coming year or years, I think Zynga is a long-term opportunity. The stock is 48 percent higher on the 52-week chart, and the 52-week low is exactly that far away.

Down from $4.50 in November, however, I have used last week's Sterne Agee and UBS reports to accumulate a small position in ZNGA ahead of the February 5 conference call. I think that these bearish reports have lowered expectations to a level that provides CEO Don Mattrick and his team more opportunity to talk about long-term plans instead of focusing on Q3 2013. Ultimately, this is where the market should be focused.

From a technical perspective, how ZNGA acts around the $3.50 level will be critical. If prices penetrate that support, the stock could retreat to the $2.75 or $3 per share mark.

At the moment, I am long February 2014 $3.50 calls.

Source: Sterne Agee Zynga Warning A Gift