Zynga Is Still Facebook's Outside Dog

NEW YORK (TheStreet) -- This week, a month after I wrote "Play With Zynga Games, Not Zynga Stock" shares in Zynga (ZNGA) soared after news the online game company had successfully recruited Don Mattrick as its new CEO. After trading in the mid $2.80s, shares are once again above $3, closing Tuesday at $3.27.

But how long will this last?

Active trading is generally bad for investors, but Zynga isn't an average stock. Wall Street views most stocks under $5 as bankruptcy candidates -- and with good reason. The street is littered with the corpses of portfolios that attempted to buy "value" under $5.

I suggest that investors use this week's price spike to take some money off the table. It's not that I think Mattrick isn't an effective leader or that he can't turn the company around. Mattrick led Microsoft's ( MSFT) highly successful Xbox division. Clearly he's an outstanding choice and Zynga's shareholders are lucky that he agreed to give up his summer and start almost immediately.

The problem shareholders face is bigger than one man. Mattrick needs time to assess leadership and/or install new C-suite members. Finding a way to shift Zynga's foundation from sand to bedrock will also take time.

Zynga is connected at the purse to Facebook ( FB), and enjoys slightly greater negotiating leverage than our three-year old son has with my wife. Investors with even an elementary understanding of game theory can comprehend Facebook's ability to put Zynga in checkmate within at most two moves whenever it wants.

Changes in command are nothing new, and we don't have to guess what the likely outcome is.

Fortunately, we have a similar example as a road map:

BlackBerry ( BBRY) changed chiefs in January 2012, and it turned out that Thorsten Heins was another A-list CEO who took the helm of a tech company circling the drain. I have many, but please read my last BlackBerry article titled "BlackBerry Hits Iceberg in June."

News of Heins' taking control moved shares higher at first, but gravity is a bitch and restraining a waterfall is an arduous task for one person. The specific underlying problems of both companies are worlds apart, but the fundamental issues are the same.

Both companies must reverse course and increase revenue while simultaneously improving margins. BlackBerry's demons are called Apple ( AAPL) and Google ( GOOG) while Zynga is treated like Facebook's outside dog during a Wisconsin winter.

As a shareholder who believes in the long-term Zynga investment thesis, you can take some money off the table while steak is being served and buy back your shares at hot-dog prices.

We all know the possibilities if online gaming becomes a reality, but do you think Mark Pincus, Zynga's current CEO who is busy clearing out his desk, would leave immediately preceding a profuse gaming announcement?

Not likely, and that's your clue the odds are in your favor to sell now while retaining an opportunity to buy the same shares later at a lower price.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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