Zynga: On the Money

 | Mar 11, 2014 | 3:00 PM EDT
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Zynga (ZNGA) is up almost 5% today in an otherwise flat tape. The company surprised Wall Street last Monday when CEO Don Mattrick spoke at a Morgan Stanley conference and responded to one question by saying that he was thinking about taking the company back into real-money gaming.

This came as a shock because one of Mattrick's first actions when he was appointed CEO last summer was to announce that the company wouldn't pursue real-money gaming licenses. The stock quickly sank on that news, as many investors believed that road offered a lot of profit for the company.

Yet Mattrick last week tried to clarify why he said what he said last year and explain what he really meant:

Early on when I joined, I asked the team, tell me the size of the market and poker on Facebook, on mobile devices, tell me our share, tell me what's happening in the competitive landscape, why are we not investing more in this rapidly growing global business that has lots of profit, lots of consumers out in front of us. So, the first thing that we're doing is really focusing in on our core expertise and capability and getting to effective execution against that.

In relation to real money gaming and other ways to engage consumers, we have shared that we will be doing pilots in different geos in the world, we're not at a stage where we're announcing anything. When we're announcing, I'm trying to announce it with the intent to win and to make it global and to make it meaningful to our P&L. So, things that we've stopped doing were things that felt to me like they had limited runway and we're distracting people. I read a lot of analyst reports at that point in time and I didn't feel people were giving as much attention to the core opportunity, and sometimes execution is about the things that you don't do as much as it is the things that you do.

The stock quickly jumped on those comments, and it has continued to be strong.

My interpretation is that he either didn't realize the potential for real-money gaming last year or he was deliberately trying to keep investors' expectations low by talking down his interest. His wording now implies that he was simply trying to focus the team at Zynga on its core offerings -- and maybe there is something to that.

The bottom line, though, is that real-money gaming is an opportunity that is too big for Zynga to pass up. It's right in the company's wheelhouse, as it has always been strong in casual poker.

What's particularly promising about Mattrick's comments is that he's now talking about not doing anything unless it is "meaningful to our P&L" and global. If so, the stock could have much more room to run this year.

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