Zynga (ZNGA) Stock Gains After Announcing Job Cuts

NEW YORK (TheStreet) -- Shares of Zynga (ZNGA) were up 4.2% to $2.72 on Thursday morning after the social game publisher announced it will cut 18% of its staff as it narrows its focus.

During the company's first quarter earnings call, Zynga CEO Mark Pincus said the company will cut 384 jobs by the end of 2015 

The company expects to take charges of $18 million to $22 million in the second quarter as a result of the cuts. The job cuts will result in annualized savings of about $45 million excluding the charges, and the company plans to save another $55 million in other ways, including switching its services over to Amazon.com (AMZN) services.

Pincus told the Wall Street Journal the company was "trying to do too much." The CEO plans to focus the company on most popular areas such as casino games.

Pincus returned to the role of CEO at Zynga in April after two years, taking over the position from former Microsoft (MSFT) Xbox head Don Mattrick.

TheStreet Ratings team rates ZYNGA INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZYNGA INC (ZNGA) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 78.8% when compared to the same quarter one year ago, falling from -$25.24 million to -$45.13 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, ZYNGA INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $4.35 million or 43.80% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.51%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 66.66% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • ZYNGA INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ZYNGA INC reported poor results of -$0.25 versus -$0.05 in the prior year. This year, the market expects an improvement in earnings (-$0.04 versus -$0.25).
  • You can view the full analysis from the report here: ZNGA Ratings Report
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