Zynga (ZNGA, Financial) has been a consistently bad stock for investors since its IPO back in 2011. The arrival of new CEO Don Mattrick hasn’t changed much as the company has lost almost half of its value since his arrival. Moreover, the multimillion dollar acquisition of NaturalMotion hasn’t shown any rewards and as a result investors have started to lose confidence in the company.
Toward the end of Q3, Zynga had 26 million daily active users (DAUs) and 112 million monthly active users (MAUs). The figure dropped from 30 million DAUs and 133 million MAUs as compared to Q3 of last year. Revenue plunged 13% year-over-year to $177 million as it shared a net loss of $57 million, keeping it on track to lose over $200 million before the end of FY 2014. This implies that Zynga will have lost more than $800 million in the course of recent years. Its adjusted EBITDA margin came in at only 1% - down from 5% in the former year quarter and 8% in the past quarter.
Waning popularity of core games
Zynga's three center games - Farmville 2, Zynga Poker, and Hit It Rich - represented 61% of its top line amid the second from last quarter. Shockingly, enthusiasm toward every one of the three games has melted away, as per their rankings.
The quick decreases of Farmville 2 and Hit It Rich are alarming, since it implies that Zynga must adapt its contracting gamer base all the more viably to create a relentless stream of revenue. Sadly, Zynga's payer change (allowed to paid player) rate was just 1.8% keep going quarter - a drop from 1.9% in the second quarter and just a moderate change from a 1.6% rate a year prior.
Notwithstanding, Zynga's ABPU (normal bookings per client) came in at 7.3 pennies, up from 5.5 cents a year prior and 4.7 pennies in the second from last quarter of 2012. This implies that while Zynga can't accumulate new free players and proselyte them into paid ones, yet it knows how to drain more cash from its contracting client base. That is not shocking, considering that Bloomberg once reported (preceding Zynga's IPO in 2011) that 25% to half of the organization's revenue originated from 1% of its users.
That disproportionate figure, which shows that Zynga's future is controlled by purported "whales," hasn't changed. It has presumably deteriorated. A Feb. 2014 study by application testing firm Swrve uncovered that 50% of all free to-play games' in-app buys originated from only 0.15% of all players.
The Problem With The CEO
The issue with Mattrick's methodology is that it dismisses Zynga from making non-authorized games. Imprint Porter, Zynga's general chief in New York, once conceded that large portions of Zynga's games were clones of more seasoned games. At the same time at any rate those games didn't oblige extra permit expenses. Presently, Zynga is prepared to pay the NFL and Tiger Woods authorizing expenses for extra brand distinguishment. That is an insecure methodology when the organization's top line is declining and how the money adds up stays profound in the red. It likewise tells investors that Zynga has just used up thoughts.
Conclusion
While investors may still hope Zynga to turnaround in 2015, it looks like a sell to me. The aforementioned headwinds will take its toll on Zynga and the failure to come up with new games will further deteriorate Zynga’s condition. Hence, Zynga is a sell.
