Zynga Raises Its Game

 | Jul 02, 2013 | 10:15 AM EDT
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I was listening to Jim Cramer discuss Zynga (ZNGA) on CNBC's Squawk on the Street. He liked the move by Don Mattrick to join Zynga as CEO, replacing Mark Pincus. Cramer said that Pincus was divisive and Mattrick seems like a peacemaker. He pointed out that Groupon (GRPN) fired its original CEO, Andrew Mason, and the stock has doubled since.

What Cramer likes most about Zynga, though, is its cash; it hasn't burned through it and still has approximately $2.70 per share in cash and real estate.

I agree with Cramer. Mattrick is a great hire and will inspire a lot of confidence from both employees and investors. The guy is a winner and has proven that over many decades. Other outsiders have come into Zynga from companies like Electronic Arts (EA) and failed; however, they were not Don Mattrick.

The great thing about the cash for Zynga investors is that it gives the stock a base. From the reaction Monday and today, with shares up nearly 11% to $3.41 this morning, you can see how positive news can dramatically spike the shares higher. But it's going to take time for Mattrick to spin that cash into real value. I'm not talking years, just quarters.

Mattrick's likely going to bring new processes to Zynga for game development. There might be more layoffs as well. It's all needed, but it doesn't immediately jack up the share price. Yet, it's a necessary foundation for building the right house.

The difference between Groupon and Zynga is that Groupon was already starting to turn the ship under Mason but just kept disappointing. Under co-CEOs Eric Lefkofsky and Ted Leonsis, things have settled down at Groupon and they have been given credit for being there as the ship continued to turn.

Zynga's still turning the ship and has made a lot of sound moves, but it lives and dies by hit games. It will really only see a strong rally on the back of a new hit game, which will help grow daily active users again. Maybe Mattrick will get lucky and that will happen in the back half of this year with one of the games already in the pipeline. But we haven't seen that elusive hit game yet.

In the worst case, that game might still be in the earliest planning stages at Zynga and be quarters away from introduction.

It's a good day for Zynga and its investors -- but the really good news might take another year of development before it starts manifesting in the share price.

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