Recently, SAC Capital, led by Steven A. Cohen, increased its stake in video-game publisher Zynga (ZNGA) to approximately 5.3%. This almost doubles SAC’s stake in Zynga, which stood at 2.0% at the end of 2013.
Zynga is a renowned game developer with popular games such as Farmville, Words with Friends, and Draw Something in its kitty. The company has had a rough time since it went public at the end of 2011, including multiple rounds of layoffs, ill-considered acquisitions, and a soured relationship with Facebook (FB).
However, it is worth noting that SAC’s decision to raise its stake in Zynga comes at a time when the social game developer has had a bearish week. It has tumbled approximately 8.7% since the disappointing Initial Public Offering (IPO) of competitor King Digital (KING), which dampened the bullish outlook of the social gaming market.
At the end of 2013, SAC Capital owned just 15.8 million shares of Zynga but now that the firm has raised its stake, it has edged out Vanguard Capital (with a 5.1 % stake as of Dec 2013) as the game maker’s largest shareholder.
In 2011, Zynga debuted at $10.00 but now trades at $4.42. The decline in share price can be attributed to its failure to respond to a market shift towards games played on smartphones.
However, over the past twelve months, Zynga’s shares have surged 39.9%. Zynga has been trying to boost its competitive position in the mobile gaming segment through the launch of mobile games for Apple’s (AAPL) iOS platform. Zynga also posted better-than-expected third quarter results.
Although, increased competition from the likes of Electronic Arts remains a major headwind going forward, we believe that Zynga’s innovative product pipeline and its dominant position in the social and gaming sector will help it in achieving robust growth in the near term.
Currently, Zynga has a Zacks Rank # 1 (Strong Buy).
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