Zynga Inc. (ZNGA) regained Nasdaq compliance after it recently appointed Google (GOOGL) executive, Regina Dugan, and venture capitalist, John Doerr, as independent directors. Zynga’s share price, however, declined 0.99% to close at $3.01 on Jul 9, 2014.
Last month, in a regulatory filing Zynga stated that it lost Nasdaq compliance after two independent directors stepped down. In April, the company had announced that two directors, LinkedIn’s co-founder, Reid Hoffman, and DreamWorks Chief Executive Officer (CEO), Jeffrey Katzenberg, would not run for re-election.
Under Nasdaq rules, a public company needs to have majority independent directors. Per Reuters, Dugan is the second female director on Zynga's board alongside former Yahoo executive Ellen Siminoff. Post the inclusion of Dugan, the board has a total of 9 directors.
Dugan’s appointment is significantly strategic, in our view. Zynga is aiming for a brand makeover under the leadership of new CEO Don Mattrick. The beleaguered social game developer will benefit from Dugan’s expertise in handling critical engineering projects related to tablets and smartphones at Google.
Zynga 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). Zynga debuted at $10.00 but now trades at around $3.00. Year-to-date, share price has plunged 23.8%.
The decline in share price can be attributed to Zynga’s failure to respond to a market shift toward games played on smartphones. Post Farmville, the company has failed to launch any game that fancied gamers.
Since CEO Mattrick took over the reins, three high-profile senior executives left the organization. In April, founder, Mark Pincus, handed in his papers, which was a huge blow to the company.
However, Zynga remained tight-lipped regarding the reason for these exits. In a recent conference, CEO Mattrick failed to give any visibility on the company’s profit earning potential. Zynga has reported loss in the last four quarters.
Moreover, he did not to provide any details either on the long-term outlook or the future product pipeline of the company. This pessimistic approach of the CEO coupled with the high-level resignations at senior management shook investors’ confidence to a great extent.
We believe that the new appointments will steer Zynga into safer waters. However, the process will be tough due to intensifying competition from the likes of King Digital, Glu Mobile (GLUU) and Electronic Arts. The resurgence in physical game sales due to Next Gen consoles will be a significant headwind at least in the near term.
Currently, Zynga has a Zacks Rank #3 (Hold).
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