Is Zynga a Breakout Stock Candidate for 2015?

NEW YORK (TheStreet) -- Zynga's (ZNGA) stock performance over the last two years has been rough to say the least. There are some glimmers of hope that these shares are on the rebound in the near term.

Zynga was a champion of Web-based games and used Facebook (FB) to make its games go viral. The shift in casual gaming from the Web to mobile devices caught Zynga by surprise, however, and this was largely responsible for the stock's downfall.

The company has shown promise in the last year in developing compelling, mobile-first titles.

Four titles are currently known to the public: Empires and Allies, Farmville Harvest Swap, Dawn of Titans and Mountain Goat Mountain. Zynga hasn't made the latter two available globally yet but is beta-testing them in foreign markets.

The quality of these games relative to their former Web peers are solid. Empires and Allies and Farmville Harvest Swap are both globally available and are monetizing well with seemingly zero paid marketing being done so far. Zynga CEO Mark Pincus said on the latest conference call that the plan is to release five to eight titles in 2015, so there could be some surprises coming.

Meanwhile, an important stock market measure shows that fewer investors and traders are making bearish bets on Zynga's stock.

Short interest, which measures the number of shares of a stock that people have sold short, has declined considerably for Zynga and is at its lowest level in more than a year.

It is clear that there are fewer people willing to bet against Zynga at the moment. That's a sign that there's some potential for this stock, especially considering how high Zynga's short interest has traditionally been. Although declining short interest alone shouldn't be used to make investment decisions, this steep decline is noteworthy. Shares of Zynga were changing hands early Monday at $2.93, down 1 cent.

Data via Nasdaq.com

Zynga is interesting as a potential growth play that will beat revenue estimates, but the company is also making some necessary (albeit difficult) organizational changes to help decrease costs.

In May, Zynga announced a cost-reduction plan that will eliminate 18% of the workforce and create roughly $100 million in savings.

Not only will eliminating redundancies in the workforce have an immediate effect on the company's financials, but it should also boost efficiency and productivity internally. Being nimble and entrepreneurial is important in this industry, and any ability to cut process and bureaucracy is welcome.

Mark Pincus recently rejoined Zynga as CEO, replacing Don Mattrick. It's good to have company founders as CEOs because their passion is usually impossible to replicate. Pincus likely is frustrated with the company's performance since it went public and now sees it as his mission to return the company to growth.

Part of his motivation to return likely is emotional as Zynga's performance affects his personal reputation. At this point there's not a better person to run the company.

This is a hit-driven, volatile industry. However, releasing a single successful title has the power to completely change a company, as we've seen with both Glu Mobile (GLUU) (Kim Kardashian: Hollywood) and King Digital (KING) (Candy Crush Saga).

Zynga is trading at about 1.5 times book value at the moment. This risk/reward, along with the aforementioned developments make this an interesting investment right now.

This article is commentary by an independent contributor. At the time of publication, the author held positions in Zynga.

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