Shares of social media gaming company Zynga (NASDAQ:
) traded down over 18 percent on Friday, after the company cut
its guidance for the year Thursday evening.
Zynga lowered its guidance for fiscal year EBITDA to $147-162
million -- it had previously seen $180-250 million. It also
lowered the outlook for fiscal year bookings to $1.085-1.100
billion from $1.15-1.225 billion. Zynga reported preliminary
third quarter revenue of $300-305 million, above the $286.4
million estimate. Zynga also said its preliminary third quarter
earnings per share would come in between break-even and a loss of
The lowered guidance revision was the second from Zynga this
year. Those announcements -- along with a wave of executive
departures -- has sent shares sharply lower on the year.
The company had its IPO last December, pricing at $10 per
share. Shares then rallied throughout the winter and into the
early spring, peaking near $15. However, since then, shares have
traded almost exclusively in one direction: Year-to-date, shares
are down over 75 percent.
In March, Zynga purchased OMGPOP, which operated in the same
industry as Zynga with its title "Draw Something."
At the time, Draw Something was emerging on the scene with
enormous popularity. Seeing an asset it could pair with its other
hit titles like FarmVille and Words with Friends, Zynga swooped
in to acquire the studio.
Unfortunately for Zynga, the popularity of Draw Something has
declined notably throughout the year. Zynga owned up to this
trend on Thursday, opting to write-down the acquisition of
With Zynga shares in a tailspin, it might be prudent to raise
the question: is social gaming simply a fad?
To observers of the video game industry, fads are fairly
common. Perhaps the most obvious, recent comparison can be drawn
from the rise (and rapid decline) of rhythm-based games.
In 2005, Activision (NASDAQ:
) distributed Guitar Hero. The game was unique, allowing players
to use a customized guitar controller and play along virtually to
popular rock songs. The game was a massive hit, spawning four
sequels and a host of copy-cats.
But then in early 2011, despite having generated billions in
profits, Activision opted to put the series on a "hiatus."
Likewise, Electronic Arts (NASDAQ:
) has not published an entry in its own rhythm series -- Rock
Band -- since 2010.
Will social gaming befall a similar fate?
Activision and EA were affected very little by the decline of
the rhythm genre, as they had a plethora of other titles in other
forms of gaming to derive revenues from. Zynga on the other hand
remains completely reliant on that sector of gaming.
Of course, Zynga might be onto this possible secular decline.
Perhaps in a move to shift its focus, the company hired Maytal
Olsha last month. Giving Olsha's background, it may suggest that
Zynga plans to focus more heavily on online gambling.
That could breathe new life into the beaten down stock. But,
if the recent trend continues to play out, investors looking to
bottom-fish -- even at these levels -- might regret the move.
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