I like Zynga. I like Zynga games. Neither sentiment is fashionable in Silicon Valley, nor Wall Street. But there it is. Zynga games reach a mainstream audience that adores them, but seemingly, not enough these days.
That makes it all the more painful to ask this question: Is it time for Mark Pincus to step aside as CEO from the company he founded?
If your only barometer is the stock (and it shouldn't be), then the verdict is bleak. One day after Zynga drastically lowered its outlook for the rest of the year, the already troubled stock was crushed even further, falling 34 cents, or 11.9 percent, to $2.48.
At the moment, investors are saying the company is worth about $1.77 billion. Compare that with the $735 million value of revenue-free Instagram when it was acquired by Facebook, and you get some sense of just how bleak sentiment is right now.
That comes on the heels of a troubling earnings warning the company issued Thursday. Zynga said it expects $300 million to $305 million in revenue in the quarter ending Sept. 30, down from $332 million the previous quarter, and about flat from the same quarter last year.
Pincus has always said, like other Web entrepreneurs of this era, that he is taking the long view. But at the moment, it's hard to miss that in the past year, from a financial and performance perspective, we've seen Zynga stall, and then move backward.
This feels particularly true with the extensive string of executive departures. According to an investors' note from Brian Pitz, analyst at Jefferies & Co., the company has been experiencing a drain on talent, having lost 13 key employees since March 2012. Indeed, on Friday, the VentureBeat blog reported that the two creators of Zynga's "Words With Friends" game, one of its most popular, were leaving the company.
Pitz wrote that such departures could cause all sorts of trouble with development of new games, operations and morale, leaving the company even more vulnerable to seeing its best and brightest lured away to competitors.
The question here is why did all these people leave? Did they flee or were they pushed? Either way, it looks troubling from the outside.
And there's the company's actual performance. As Pincus wrote yesterday in a blog post:
"The reduced performance of some of our live web games is continuing to impact results and we have several new games which are at risk of launching later than expected."
Current games are declining, and the company can't push the new ones out fast enough. That's a tough cycle to break. Especially if Zynga will be looking at targeted cuts, as the company suggested in its warning. That's yet another morale killer, for employees already watching top management flee as their stock options drop in value. I would expect that some time soon, Zynga will have to reprice some chunk of those options, which would cause yet another earnings hit.
One option, of course, would be an acquisition binge. But again, confidence in Zynga on that front has been shaken due to the OMGPop deal. Zynga acquired the company for $180 million earlier this year, driven by the initial success of its mobile game "Draw Something." On Thursday, Zynga said it would have to write off $85 million to $95 million of that due to the poor performance of the game since the deal.
This all comes back to Pincus, and his leadership. Right now, it's looking more and more like Zynga was a shooting star, driven by several viral hits, rather than a stable, enduring company.
For the moment, there seems to be no mob gathering on Wall Street to call for Pincus to step aside. Most analysts who issued notes this week seemed more focused on the need to trim costs, get control of operations, and find some new hit games.
"He's not stepping aside, and no, nobody is saying that he should," Michael Pachter, an analyst at Wedbush Securities, wrote in an email. "He should make an effort to be transparent and shareholder friendly, and I think the pre-announcement and blog show that he acknowledges the problem and will address solutions on the next earnings call. He talks about cost cutting and eliminating several games, so that sounds to me like he is trying to get the company more profitable."
All good points, though I would also say, not the kind of technical approach likely to inspire the Zynga troops.
Pincus needs to change the perception that Zynga is in decline and re-energize employees. At the same time, he needs to regain the confidence of investors. This is where Pincus needs to stop and ask himself that toughest of questions: Can I do all of this? He needs to put aside ego and pride, and carefully analyze the environment around himself.
To be clear, no one is going to force him to do it. Like many Internet companies that went public in recent years, Zynga structured the stock ownership to give Pincus majority control. Pincus has 50.15 percent control of the voting shares. That means, ultimately, he is the decider, and not the board.
Of course, there is a compromise to consider here. Pincus is also chairman of Zynga. He could transition into an executive chairman role, while bringing in someone else to be CEO. But that's getting ahead of things. For now, the question remains: Is Pincus the right one to turn this around? Only he can answer. But it's a question he can no longer avoid.
Contact Chris O'Brien at 415-298-0207 or email@example.com. Follow him at Twitter.com/obrien and read his blog posts at www.siliconbeat.com.