Last week, Zynga Inc (NASDAQ:ZNGA) stock gained 3% on Tuesday then lost 2% on Wednesday as investors were apparently unsure what to make of the company’s first-quarter earnings report and the news that founder Mark Pincus has given up super control of his company.
Founder Converts His Shares to Common Zynga Stock
As CEO Frank Gibeau explained in the earliest minutes of the earnings call, Mark’s high voting shares have been converted into common stock. This “establishes voting rights parity for all Zynga shareholders creating a one-share, one-vote structure.”
More tangibly, Pincus’s voting rights have shrunk from 70% to 10%.
Many have applauded the move. The tech industry is infamous for worshiping founders and allowing them full reign over their creations — even if their innovative ideas don’t naturally translate to business acumen. The call for “voting parity” also might sound sweet to many Zynga stock holders.
Of course, no one buys a stock thinking they’ll vote it into the black. And that’s why investors should care more about Pincus’s apparent motivation for giving up so much control. In addition to telling the San Francisco Chronicle he wanted to focus on new entrepreneurial opportunities like blockhain, Pincus also wrote a Medium post about the news.
“With Zynga in a strong position and a team focused on our players, it’s a good time to evolve my role again,” he said. Prior to that, he outlined some of the highlights: an increase in mobile DAUs, an increase in mobile bookings, moving cash flow into the black and returning $400 million to shareholders with buybacks.
Pincus Is Not Jumping off A Sinking Ship
Zynga announced another $200 million buyback plan during its earnings call and posted solid fundamentals for the quarter. Those fundamentals could finally break Zynga stock out of the sideways movement of the last year –movement that hasn’t changed even as ZNGA met or beat expectations in each of the last four quarters.
The company’s earnings shriveled by 2.4% each year over the last half-decade. But they are expected to expand by 30% annually going forward. The current quarter is especially impressive, with 50% growth on tap. Those estimates give Zynga stock a forward P/E ratio just under 20.
On the top line, sales are also posting pretty solid growth, with a 7% expansion slated for 2018 and another 9% expansion on top of that expected in 2019.
The most cynical would interpret a founder stepping away from his company as a sign that he believes its best days are behind us — or rocky waters are ahead. But there’s good reason to take Pincus at his word when he writes that “stability” is the reason for the change.
That stability is evident in the company’s line-by-line numbers. And it should make anyone thinking about buying up some Zynga stock feel pretty reassured.
The company has transitioned nicely into mobile gaming and seems well-positioned to at the very least maintain a leading position in the industry.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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