Zynga (NASDAQ:ZNGA) has seen their stock price plummet in NASDAQ trading on Tuesday, finishing the day at $4.98, down 10.3% from the Monday. NASDAQ stopped trading on the stock in a bid to stop short-sellers, and it recovered eventually after a low of $4.78. This carries Zynga’s stock price to below half of what the IPO price ($10) was.
The rush to sell was likely caused by a report by Cowen and Co. analyst Doug Creutz, stating that daily active users (DAUs) for the company were down 8.2% for the month of May and hinting that Facebook gaming has hit a curb due to the churn of casual gamers from Facebook. Creutz also noted that, while Zynga’s been active in mobile development and acquisitions, “its biggest advantages of scale and cross-promotion remain largely confined to the Facebook platform.”
The decrease in DAU numbers happened despite the launch of their latest Facebook game, Bubble Safari, a bubble popping game. This added 5.7 million DAUs.
Despite the drop in stock price, it’s not all bad news: the company still has a market capitalization of $3.67 billion. This puts the company on only somewhat lower footing than Electronic Arts (NASDAQ:EA), at $4.07 billion.
This is the second time trading on Zynga’s stock has been suspended in the past month. The first time was when Facebook went public.
Analysis: Speculators, speculators, speculators. The problem with going public is that you’re now at the whims of short-sellers: these people see something like the Cowen report and run screaming, trying to get out while the getting’s good, or in this case, before their stock gets worse. It’s classic panic selling, and frankly, it’s one of the reasons the stock market is the shit hole it is today.
The good news for Zynga is that, ultimately, this isn’t as bad of news as it looks. It’s embarrassing to have stock trading suspended twice in a month because it’s crashing to the ground, but the key number is the market cap. Simply put, that’s their total value. It means that, if they choose, they can leverage their numerous assets to make sweeping changes. This isn’t even close to being a heavy blow.
But the bad news is that the bad news has been coming fast and furious ever since they went public. Zynga simply must start spending their money better. The OMGPop acquisition has so far been a disaster, with the company losing 3 million DAUs in April, all at the premium price of $180 milllion. That’s bad news for a company that only converts about 3% of those DAUs into paying customers. Other acquisitions haven’t really panned out yet, to the point where it seems they’re indiscriminately buying out companies just for the sake of protecting their own turf, which is being increasingly sucked up by EA and Disney, even before we get outside shrinking Facebook numbers.
Is this a bad time to say that I told you so?