Zynga Falls, King Digital Rises, Investors Hardest Hit

 
 Zynga and King Digital, the two most prominent casual game companies make big stock moves in opposing direction last Friday, but both show the investment risk in this space.

We have previously discussed the woes of Zynga. Among these posts was the discussion of the hiring of Don Mattrick to replace Mark Pincus as CEO in July 2013. At the time, ZNGA was trading for $3.30/share. It is now sitting at $2.24/share. ZNGA fell as an analyst slammed Mattrick for not following through on his plan to revitalize the company and for making the same mistakes Pincus made.

Relatedly, there is much frothy discussion about a 13% increase in the stock price of King Digital on Friday. However, the current $16.70/share stock price is still substantially below its March 2014 IPO price of $22.50/share.

It is hard to believe the amount of revenue that can be generated from small, social games. However, investors must remember that generating the immense popularity for a game is like Mr. Miyagi catching a fly with chopsticks. Building on that success is even more difficult. As much as many of us are rooting for these Zynga, King and others, it would be prudent to remember that long-term success in this area has the odds of beating the house at Zynga poker (you know what we mean).

Note:  This was written prior to the opening of trading today.

Mr. Miyagi rebalances his stock portfolio.

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