Is Zynga A Penny Stock?

Zynga Inc (NASDAQ: ZNGA) was once considered to be a powerful force in online game development, thanks in part to the "FarmVille" franchise. That changed when the company started losing players, which prompted Zynga to layoff several employees.

Now the game studio, which once traded above $14, is stuck in the $2.50 range. That's above the company's all-time low of $2.12 (reached in November 2012). There wasn't much movement in the months that followed, but Zynga traded above $5 for a few weeks in early 2014.

"When I first got to Wall Street, I was taught that anything below $5 is a penny stock," Cody Willard, chairman of Scutify (a financial social network), told Benzinga. "As far as getting below $1 and trading for cents, you've got to remember that they've got $1.2 billion in net cash, no debt, [and] $1.2 billion is $1.50 per share. There's a cushion, theoretically, at $1.50."

Related Link: Zynga Needs 'Fresh Blood,' Not Former CEO Mark Pincus

'Compelling Lineup'

With regard to earnings, Wedbush analyst Michael Pachter said it is "unlikely that they do much more than the high end of guidance for the quarter, as they had no new games."

"I think that they have a pretty compelling lineup for the next two years, and think that Mark Pincus will manage the firm well," Pachter told Benzinga. "With that said, I was a fan (and friend) of Don Mattrick, and I think he put the company on a solid path to profitability."

Pachter believes that Pincus is likely to "manage the business with a greater sense of urgency than Don did."

"Mark is a tech entrepreneur who works at light speed, and Don was a console developer who worked over multi-year periods," Pachter added. "We won't know if it was smart to go back to Mark until he proves himself, but I think the company is on solid footing right now."

Pachter does not think Zynga is on its way to becoming a penny stock.

New CEO And Market Conditions

Dan Miller, senior analyst and founder of Opus Research, said that former Zynga CEO Don Mattrick tried to figure out what the alternatives were to the company's Facebook Inc (NASDAQ: FB) strategy. By reappointing Mark Pincus to CEO, Miller believes Zynga is returning to the "old strategy."

"Everything's changed," said Miller. "I don't think just changing executives is going to change the market conditions that led to their decline over the past few years."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Image credit: tarikgore1, Flickr