Zynga in danger of buying the farm(ville) with grim 2012 outlook

By Peter Gothard
05 Oct 2012 View Comments

Online games developer Zynga, the minds behind addictive Facebook-driven titles FarmVille and CityVille, has acknowledged it faces tough times ahead as its annual earnings report rolls around.

With the San Francisco-based company's shares dropping 20 per cent overnight to only $2.25 (£1.39) each on the New York Stock Exchange this morning – at the same time as a 2.7 per cent drop in Facebook's value – it looks like desperate times ahead for Zynga.

Further reading

It means the company is now worth only 28 per cent of its £1bn (£618m) IPO valuation.

Zynga is expected to post a net loss of between $90m (£56m) and $105m (£65m) for Q3, citing "reduced expectations for certain web games including The Ville and delays in launching several new games".

Founder and CEO Mark Pincus sent a memo around the company yesterday explaining how management is "addressing these near-term challenges by targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business."

But it seems a stab in the dark for a company that effectively put all its digital eggs in the Facebook basket, running its top games properties through the social network's interface and relying on microtransactions from players to monetise the company.

With interest in Farmville wavering as gamers increasingly stop playing Facebook games and move to smartphone-based entertainment, Zynga took the now-infamous decision in March 2012 to acquire games developer Omgpop which, apart from a number of card and board game staples, only had Draw Something as a big hitter on mobile platforms.

The acquisition cost Zynga $200m (£124m), but Draw Something's reported 10.8 million unique daily users began to drop off within weeks of the Omgpop's acquisition, with no amount of in-game advertising or incentivising able to stem the exodus of players.

Another part of Pincus' message to Zynga staff advised them not to "lose sight of the bigger picture. The world is playing games and is increasingly choosing social games.

"Zynga has become synonymous with social gaming serving 311 million monthly active users, the largest player network on web and mobile."

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