Zynga Faces Uncertain Future as Stock Plummets

By Ed Silverstein July 26, 2012

It’s no game. The future of Zynga is in doubt after its shares plummeted.

The company’s shares reportedly fell 37 percent to $3.20 during premarket trading on Thursday. A late report during midday on Thursday said that the company’s shares fell below $3, which is over 70 percent below its IPO price.

This comes after the social gaming company lowered its projection for the rest of 2012. On top of that, results for the latest quarter were short of projections by analysts. As it now stands, analysts are also saying Zynga's performance will not improve soon, according to Reuters News Agency.

In addition, problems arose for the company after it became more difficult to access popular games, such as "Farmville”, once changes were made to Facebook's algorithm.

"The biggest factor impacting current performance appears to be the way Facebook is surfacing gaming content on its platform," JP Morgan analyst, Doug Anmuth, said in a note to clients. "Given what we believe could be multi-quarter impact from Facebook and lack of near-term operational catalysts, we're downgrading Zynga shares."

Another factor leading to weaker performance of Zynga shares is lower expectations for the "Draw Something" game, according to The Wall Street Journal.

Also, users are now often opting for products from rival games makers and many users are moving away the web-based games offered by Zynga to mobile titles from other companies, Reuters adds. The number of subscribers for FarmVille tells much of the story. It now has some 20 million users compared to some 80 million users in March.

“The real problem was that Zynga slashed the forecast for its bookings — revenue less fees it pays Facebook — to as low as $1.15 billion for 2012, from $1.47 billion,” according to a report from The New York Times.

In light of the negative news, several brokerages lowered targets on Zynga stock to about $3 or $4.

"As Zynga looks to grow its footprint in the mobile category, the traditional Facebook business was expected to act as a solid foundation, but is instead showing incremental weakness," said Piper Jaffray analysts.

Zynga shares closed at $3.20 on Wednesday, much lower than the December IPO price, which was $10 a share.

Zynga saw a loss of $22.8 million during the latest quarter, which ended in June. In the most recent quarter, Zynga also saw revenue of $332.4 million, compared to an average analyst projection of $344.12 million, according to data from Thomson Reuters.

"The quarter is a disaster,” said, Sterne Agee analyst, Arvind Bhatia. "It's looking more and more like this was a fad because they've introduced so many new games, yet EBITDA [earnings before interest, taxes, depreciation and amortization] continues to come down."

On the bright side, Zynga said its daily active users increased 23 percent to 72 million during Q2. Lower revenue were earned from each subscriber.

One possibility to restore some health to the company is for it to come up with its own gaming platform, which is separate from Facebook. But the NY Times says that is “still in the early stages.”




Edited by Brooke Neuman

TechZone360 Contributor

SHARE THIS ARTICLE
Related Articles

Consumer Privacy in the Digital Era: Three Trends to Watch

By: Special Guest    1/18/2018

Digital advertising has exploded in recent years, with the latest eMarketer data forecasting $83 billion in revenue this year and continued growth on …

Read More

CES 2018: Terabit Fiber - Closer Than We Think

By: Doug Mohney    1/17/2018

One of the biggest challenges for 5G and last mile 10 Gig deployments is not raw data speeds, but middle mile and core networks. The wireless industry…

Read More

10 Benefits of Drone-Based Asset Inspections

By: Frank Segarra    1/15/2018

Although a new and emerging technology, (which is still evolving), in early 2018, most companies are not aware of the possible benefits they can achie…

Read More

VR Could Change Entertainment Forever

By: Special Guest    1/11/2018

VR could change everything from how we play video games to how we interact with our friends and family. VR has the power to change how we consume all …

Read More

Making Connections - The Value of Data Correlation

By: Special Guest    1/5/2018

The app economy is upon us, and businesses of all stripes are moving to address it. In this age of digital transformation, businesses rely on applicat…

Read More