Zynga bets the farm with moves into gambling, mobile
(MoneyWatch) The future remains doubtful for Zynga (ZNGA).
The maker of games including "Farmville" and "Draw Something 2" posted profit last quarter that topped estimates, but sizable declines in sales and user activity alarmed analysts, and disappointed investors.
Zynga saw its revenue fall 18 percent compared to the same quarter last year, as daily user activity slid 21 percent to 52 million. On an earnings call Wednesday, executives attributed the declines to the company's ongoing transition to mobile platforms and outdated games slated for discontinuation. Shares of Zynga tumbled 6.5 percent Thursday in response.
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Mark Pincus, CEO and founder of Zynga, warned that the company continues expecting "uneven, non-linear results."
"Our best growth opportunities are clearly on mobile, which is the next frontier in social gaming," said Pincus in a statement Wednesday. "For our 253 million monthly active users, we can now offer them a connected experience they can follow our players from work or school to home and everywhere in between. We've already seen the success of this connected experience with our Poker and Words with Friends games, and you will see several more fully connected games across web and mobile coming from us this year."
Zynga shares rose 22 cents Friday to $3.35, a gain of roughly 7 percent. But analysts expressed worries over whether the company will succeed in its push to mobilize its social games and become less dependent on Facebook (FB).
"We continue to believe that a meaningful turnaround at Zynga hinges on developing a sustainable mobile and Zynga.com business," said Heath Terry, a managing director of Goldman Sachs (GS), in a report. "While there are some positive signs, we believe the company is in very early stages of that."
Zynga seems to be making improvements in mobile. The company said that comScore ranks Zynga as No. 6 overall in total time spent on mobile in the U.S., behind Facebook (FB), Apple (AAPL), Microsoft (MSFT), Google (GOOG) and Pandora (P).
On Thursday, Zynga announced the launch of "Draw Something 2," a social mobile game and critical sequel to the once-popular "Draw Something," which Zynga acquired in 2012 with its purchase of OMGPOP for a reported price of $210 million.
Despite the products that it brought, the deal has not been a happy story for Zynga. It had to write down a $95.5 million loss last year because of the acquisition, just months after the buyout was finished. And OMGPOP founder Dan Porter resigned from Zynga last month, two weeks after he said at a panel discussion that "Zynga is often accused of copying games, which is mostly true."
David Ko, chief operations officer of Zynga, said during a call after the company's quarterly release Wednesday that the company remains confident amid tough decision-making to "double down on its big bets" and establish itself as an independently sustainable business. Zynga in recent months released new games, including "What's the Phrase" and "War of the Fallen," and turned its website into an online arcade, a standalone platform where Zynga's gamers aren't required to sign in with Facebook.
Zynga also this year took a step deeper into the hyper-competitive market of online gambling, just as casinos including Caesars Entertainment and Wynn Resorts are trying to protect their core businesses. Zynga, now a partner of global gaming operator bwin.party, said in a regulatory filing Wednesday that "ZyngaPlusPoker" and "ZyngaPlusCasino," two real money games in the U.K., were the "first step toward realizing Zynga's long-term vision of bringing players the next generation of real money games on multiple platforms in regulated markets."
As Zynga seeks new ways to make up for sinking revenue and user activity, it waits to see what lawmakers will do about online gambling, a potential bright spot for the public company whose business model has long relied on keeping its players in its game rooms, and its high rollers happy.
Pincus said that real money gaming could eventually provide a source of revenue in the U.S., but "obviously we can't tell you when the regulatory environment will let us start testing."
Waiting on legislators might not be a winning ticket to a secure future.