Reportedly, social game developer and publisher
Zynga Inc. (
has closed down six games namely Petville, Mafia Wars, Fishville,
Vampire Wars, Treasure Isle and Montopia. According to
TechCrunch, Zynga has also withdrawn four games from app stores
that include Mafia Wars Shakedown, Forestville, Mojitomo and
World Scramble Challenge.
The move executes Zynga's reorganization plans, which the
company announced on October 24, 2012 along with its third
quarter earnings release. As per the plan, Zynga expects to
generate fourth quarter pre-tax savings in the range of $15 to
$20 million. The company also intends to lay off 150 employees,
shut down 13 games and significantly lower investment in The Vile
Zynga has already shut down 10 of these games. The company has
also stopped accepting new players for Indiana Jones Adventure
World, which is scheduled to close down on January 14, 2013.
Zynga announced the reorganization after its share price
plunged 75.0% in the trailing twelve months. Although the company
has more than 292 million monthly average users, investors remain
sceptical on the stock due to the company's inability to monetize
this strong customer base. The other factor that hurt their
sentiment was Zynga's overdependence on
Zynga games are mostly free-to-play (i.e. they don't earn any
money upfront), mostly generating revenue through the sale of
virtual goods and advertisement. The partnership with Facebook
enabled Zynga to reach a larger audience, which catapulted it
from a small start-up to the biggest brand in social gaming.
However, post Facebook's IPO, the relationship between the two
partners began to sour. Facebook's poor reach and inability to
monetize the mobile segment had a significant negative impact on
Zynga. On the other hand, Zynga was also criticized for the lack
of new and diversified gaming content, which failed to attract
Most recently, Zynga lost its exclusivity to Facebook, which
is a serious setback for the company, considering the fact that
the social networking platform has been its primary source of
revenue over the last few years (currently 85.0% of Zynga"s
traffic and 92.0% of its revenue). In this regard, we believe
that the reorganization plan will help Zynga to boost its
profitability over the long term.
Lately, Zynga has been looking for new avenues to boost its
sagging revenues. The company has teamed up with a number of
companies that include online gambling company bwin.party, credit
card provider American Express, as well as game developers
Majesco Entertainment (
and Atari. Zynga has also filed an application with the Nevada
Gaming Control Board for an online gambling license in the
However, we note that growth from these partnerships will take
some time to materialize. Similarly the procurement of the online
gambling license is a time consuming process. In between, its
games continue to lose popularity and money amid stiff
competition from established players as well as new entrants.
Further, the revised terms with Facebook (despite Zynga's
initiatives to reduce exposure) will remain an overhang on the
stock in the near term.
We remain Neutral on Zynga over the long term (6-12 months).
Currently, Zynga has a Zacks #3 Rank (Hold).
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