Zynga’s plan to move to mobile gaming not looking good

Zynga was once seen as the next rising star in the burgeoning social internet market until it decided to go public, starting a gradual decline in its stock price for several months now. Last Friday, analysts educed their expectations for the company further by lowering the price of Zynga’s stocks to $2.21–about 75% decline off the initial $10 debut last December. Now, Wall Street and analysts are watching what Chief Executive Mark Pincus will do next to save his fast sinking ship.

Pincus, 46, controls a majority of the voting stake and is a co-founder of Zynga as well. Analysts looking at the situation are suggesting that the first  step he needs is to reduce his 3,000 workforce globally and ensure a comeback hit game to regain the still-growing number of players switching to mobile devices. Zynga is currently not in a good position to compete in mobile gaming.

Zynga has released a couple of games this year like ChefVille and The Ville and is reportedly working on a few more. In an apparent probable switch in focus, Pincus announced to employees that Zynga will be investing in mobile games industry. He also hinted a possible lay-off plan when he said Zynga will be making  “targeted cost reductions”. Zynga is slowly leaving its once dominated “casual” gaming sphere with games like Farmville, the company’s main source of earning during last few years.

CEO of Digital World Research P.J. McNealy said: “They have banked on the casual gaming segment, and to readjust the business to more core gaming, some casual heads probably have to roll.”

Zynga’s planned move is a major change for a company that once relied on the popularity of Facebook as a platform. Games from Zynga includes CityVille, Mafia Wars, Zynga Poker, FrontierVille, and Farmville. These games accounted for 83% of company’s total revenue last year.

Zynga’s main problem is to stop users from moving to games being offered by its rival publishers on mobile phones and tablets.

Zynga’s 3.5 million monthly-paying customers rose to 4.1 million during the second quarter. However, the increase in number was due to Zynga’s acquisition of Draw Something last March.

But while Zynga’s fortunes may not be growing anymore, Pincus has still a massive $1.6 billion cash holdings on standby, preventing any early talks of bankruptcy. The company’s revenue is also still relatively substantial.

Zynga is plagued by increasing number of talent drain however. This is what makes Pincus job more difficult as the company’s employees seem to be leaving it when it needs them the most.

Last Friday, two of the co-makers of “Words with Friends”, one of the hit games of Zynga in mobile gaming,  announced they have left the company for good. The departure is one of the series of exodus in the past six months.

Jefferies & Co analysts Brian Pitz commented:  “The departures underscore our skepticism about ZNGA and its ability to address the challenges it faces as it pivots towards mobile and its in-house gaming platforms. Yesterday, CEO Mark Pincus asked employees to not lose sight of the bigger picture, but this may not be enough.”

Pincus is also aiming to turn the company’s fortune around by dominating in the online gambling industry. However, analysts say that it will not positively impact the company immediately as it can take up to 24 months for authorities in the United States to legalize it.

source: reuters