- Speculators seem to be accumulating Zynga stock this month.
- The financials are healing for Zynga, and on some metrics Zynga stock is now cheap.
- Could a takeover, or takeout, be in the offing for Zynga in 2016?
Zynga (NASDAQ:ZNGA) is no longer a high-flying stock. It is one of many tired mid-caps people sometimes like to speculate on. In December they were speculating, creating a 6% move up since December 10, taking Zynga stock to over $2.70 each as of December 28.
What’s happening? The Farmville days are long behind it, but Zynga has developed a long list of what are called “social” games, played on mobile phones, often within social networks like Facebook (NASDAQ:FB). These include titles like Words with Friends, NFL Showdown, Clumsy Ninja, as well as imitation Las Vegas games like poker and slots.
There are no longer many home runs here. Just lots of singles and doubles, which add up to 68 million active users each month.
While maintaining work on new games for 2016, Zynga has also begun reducing expenses, selling more advertising, and created virtual currency players pay actual money in order to buy virtual goods inside the games. A recent press release boosting the Zynga stock touts a technical analysis indicating an uptrend has been in place since early November.
Why might speculators be nibbling on Zynga stock? One reason might be Zynga's steady cash raise this year, $663 million at the end of September, representing almost 25% of the current market cap. Zynga is on track to do almost $750 million in business during 2015, up from $690 million last year, and actually earned $3 million in the last quarter.
The healing under CEO Mark Pincus, who returned to Zynga in April, has been slow, it has taken place out of public view, but it has been real, and Zynga enters 2016 in a position to do some deals. The person making the big bucks here is CFO David Lee, a former Best Buy (NYSE:BBY) executive who joined Zynga in 2014 and most of that is in stock. In 2016 Zynga might be a buyer, or it might now be able to sell itself profitably, based on a price-to-sales ratio of less than three, 70 million monthly users and that cash.
Who might buy? Since it would only take $3 billion to do a profitable take-out, based on the company’s $2.5 billion market cap, Facebook itself is the obvious answer. While Facebook may have no interest in a marginal games company, the threat that a rival online service – Alphabet Inc-C (NASDAQ:GOOG), Baidu (NASDAQ:BIDU) and Microsoft (NASDAQ:MSFT) come to mind – might buy it and move the action could spur interest, especially with the financial risk having been eliminated.
That’s all rank speculation, but the fact is those positive numbers – cash, profits, and a slowly-rising user base no longer completely dependent on a single hit – plus the possibility that a new game next year can move the needle, are all factors in the stock’s rise.
And if you want to play this game, Zynga stock is still dirt cheap.