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TheStreet Open House

The 5 Dumbest Things on Wall Street This Week: Aug. 2

Stocks in this article: ZNGA CF POT AGU MOS JPM PRGO ELN APD FDX

5. Zynga Zapped

Don't be an ass, Don Mattrick! If you want to save your one-trick pony of a company then let it ride!

Shares of Zynga (ZNGA - Get Report) sank 14% Friday to $3 after the online game developer's new CEO said he was abandoning plans for real-money gaming in the U.S. in order to concentrate on free-to-play games instead. The decision triggered a slew of Wall Street analysts to slash their price targets on the stock, causing it to give back all the gains it made since July 1st when Mattrick was tapped to replace founder Mark Pincus in the company's top spot. Zynga lost a penny during its second quarter while revenue plunged 31% from last year to $231 million.

"In our view, by exiting RMG (real-money gaming) the company has eliminated much of the potential upside for the stock," wrote Needham & Co's analyst while downgrading the stock to "hold" from "buy."

Yep, when Mattrick arrived from Microsoft (ZNGA - Get Report) the Street thought the money-losing game-maker was off to the races, but now the punters are punting it like a football because he wants to "get back to some good fundamentals."

To be honest, we're not sure what the "fundamentals" are for the fast-moving mobile gaming business where if the fickle public doesn't crush you then falling candy will. (Trust us folks. Candy Crush will soon buy the Farmville as well. That's just the way it works.)

We'll assume that Mattrick's "back-to-basics" approach does not mean revisiting last year's model when Zynga relied on Facebook (FB) for 86% of its revenue. Facebook, as evidenced by last week's impressive earnings report, has moved on. Mark Zuckerberg's baby saw its active users jump 21% to 1.15 billion.

Zynga, on the other hand, shed over 45% of its monthly active users in the second quarter and is now down to 39 million. That's why it needs an alternative source of players at this point even more than it needs earnings. Those can come later since the company still has over $1.1 billion bucks in the bank from its now disastrous IPO. The stock is down almost 70% since it went public at $10 in December 2011.

Real-money gamers would have been the ideal source for new users, especially since Zynga already has a foot in the business in England. And as we all know, those blokes across the pond will bet on anything including a newly born Prince's middle name. (Damn, we had Arthur at 12-1!)

Back home, online gambling has already been legalized in Las Vegas and Atlantic City for the tax boost. We expect the rest of America will soon follow as more cash-strapped municipalities legalize it in order to save themselves from becoming the next Detroit.

Mattrick is most likely wagering that he can get his company creating popular social content again and still get back into the domestic online gaming market at a later date. That's a dicey bet considering how long it takes to get a license in the highly regulated sector.

Frankly, we're not sure why Mattrick wouldn't try to do both at once. There was no reason for him to fold this early, especially when Wall Street's analysts are beyond bullish on the future of internet gaming. If anything, they seemed afraid that a blown Zynga call would bite them in the ass later on, which is why the stock had higher price targets than it deserved before they were sliced last week.

Mattrick, in our view, totally misread his hand.

Instead of playing Zynga's lone wild card to the fullest, like a moron he mucked it.

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