Anybody that has invested in Zynga Inc (NASDAQ:ZNGA) since the IPO back at the end of 2011 probably doesn’t see many potential catalysts in the stock. The company was a massive hit with social games such as Farmville and has a strong franchise with Zynga Poker. Yet as the excitement over social games dies down, the company now has several catalysts that could push the stock higher
The catalysts include the large cash hoard, the new CEO, and online gambling. Plenty of doubts exist as to whether any of these will be an actual catalyst.
The company faces massive competitive pressure from not only new upstarts, but also the old school gamers of Electronic Arts Inc. (NASDAQ:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI). These large gamers are quickly moving into mobile and social and will no doubt work towards an online gambling presence. And oh yeah, both companies have hoards of cash as well.
See chart below for the one-year returns:
Zynga Inc (NASDAQ:ZNGA) has an astonishing cash hoard of over $1.5 billion, yet the company has been reticent to spend the cash on stock buybacks, and buying growth in this sector can be a losing proposition. The BOD only spent $2.5 million on buybacks during Q1, yet the company has $186 million authorized that wasn’t spent. Spending a quick $200 million would’ve been the best way to utilize that cash with the stock down at $2.5 and trading near cash value.
Unfortunately the company faces a sector where the top players are loaded with cash as well. Activision Blizzard, Inc. (NASDAQ:ATVI) has an amazing cash balance of around $4.6 billion while Electronic Arts Inc. (NASDAQ:EA) lists around $1.1 billion in net cash. More importantly both stocks have strong free cash flow providing each company with the ability to more freely spend cash that Zynga Inc (NASDAQ:ZNGA) lacks with its weak results.
Investors need to look no further than Groupon Inc (NASDAQ:GRPN) to see what a new CEO can do for a stock. That stock surged both before and after the announcement that Andrew Mason had been forced out back in February. Whether the same will happen for Zynga Inc (NASDAQ:ZNGA) is yet to be seen.
Back on July 1, the company announced that the Microsoft Corporation (NASDAQ:MSFT) Xbox President had taken over as CEO for founder Mark Pincus. While Dave Mattrick has been hugely successful in turning Xbox into a leading gaming console, investors are quick to point out that he has limited experience in mobile and online gambling areas.