Zynga Inc. (NASDAQ: ZNGA) has enjoyed a sudden new interest from traders on news that Don Mattrick has been hired away from the Microsoft Corp. (NASDAQ: MSFT) Interactive unit. The stock enjoyed a gain of about 10% on the news on Monday, but one analyst is taking a positive yet cautious view here. Sterne Agee’s analyst team of Arvind Bhatia and Brett Strauser are only maintaining a Neutral rating on Zynga. The outlook is that the company has a product issue rather than a management issue.

Don Mattrick will be CEO and founder Mark Pincus will remain chairman and chief product officer of Zynga in the management change. Mattrick most recently was president of Microsoft’s Interactive Entertainment division and was very visible during the announcement of Microsoft’s new Xbox One console. Prior to that, he was president of Worldwide Studios at Electronic Arts Inc. (NASDAQ: EA). Zynga also is lowering its headcount by 520 workers, or 18% of its workforce.

A key thesis behind remaining Neutral is that this analyst team thinks that the culture at Zynga is driven more by data-analytics and less by innovation, and this just is no longer working well. The report points out that Zynga generated higher billings in 2010 than its current run rate but with a headcount 40% lower than the headcount will be following the announced reduction.

The report said:

We think the hiring of Don Mattrick as CEO is a positive and could help turn around the company. Still, ZNGA’s issue has not been so much a lack of leadership as its recent inability to produce hits, a general slowdown in the social gaming industry, increased competition, a difficult transition to mobile and a bloated cost-structure. … Zynga has experienced a lot of success under the leadership of its founder Mark Pincus. The Farmville franchise and Zynga Poker title continue to be successful. Many of the other franchises such as Castleville, Cityville, etc. experienced temporary success but have lost most of their audiences. ZNGA’s business is now dependent on new hits, which have been hard to come by. We believe this is a product issue and not so much a leadership issue.

Sterne Agee is lowering its 2013 and 2014 bookings estimates to $793 million and $793 million, respectively, from $863 million and $893 million. It also is revising its 2013 and 2014 adjusted EBITDA estimates to $69 million and $133 million, respectively, from $83 million and $115 million. Stern Agee is maintaining a Neutral rating and it has no price target.

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