Zynga Ditches Real-Money Gaming Idea in U.S.; Investors Not Happy
July 26, 2013 3:02 PM
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Zynga said it will now go "back to basics" and offer free-to-play games on mobile devices like Apple's iOS and Google's Android
can't seem to catch a break
lately, and recent news of its plans to ditch real-money gaming (RMG) isn't helping.
Zynga announced that it will no longer seek to offer RMG -- which is basically gambling -- in the United States due to the fact that gambling with real money is illegal in several U.S. states. Obtaining the correct licenses would be a struggle, and Zynga prefers to focus on other areas right now.
This news didn't sit well with investors, where many only owned Zynga stock in the first place because of the potential of RMG. Macquarie (USA) Equities Research cut its target for the stock to $2.75 from $3.00, and Needham & Co analysts downgraded the stock from "buy" to "hold."
Zynga, the social gaming company responsible for the likes of "FarmVille," has been having a terrible time lately. It lost 40 percent of its monthly active users in Q2, and revenue dropped 20 percent.
Zynga has experienced financial trouble since its initial public offering (IPO). It filed its Form S-1 registration statement with the U.S. Securities and Exchange Commission (SEC) on July 1, 2011 and began trading December 16, 2011 at $10 per share. However, stock fell throughout 2012, hitting as low as $2.27 per share by October.
Last month, it announced plans to lay off 18 percent of its workforce (or about 520 employees) by August 2013. It had about 2,900 employees at the time of announcement.
The layoffs are expected to save Zynga about $70 million to $80 million.
The problem with Zynga is that it can't keep up in the mobile space. Its Web business has been declining faster than expected, and its mobile efforts aren't enough to fill the gap.
Another issue for Zynga is that its
casual, social games
don't seem to have long-term viability. It has had to axe 18 games in recent months -- including PetVille, FishVille, Mafia Wars 2 and Vampire Wars -- due to reduced popularity (and to make room for new games).
While Zynga still has a few successful games, like FarmVille, they haven't moved to the mobile space quickly enough, and players have increasingly lost interest over the years.
Zynga said it will now go "back to basics" and offer free-to-play games on mobile devices like Apple's iOS and Google's Android.
Earlier this month, Don Mattrick -- the president of Microsoft’s Interactive Entertainment Business -- left Microsoft to become
Zynga's new CEO
. His new position will clearly be a challenge, but it looks like he's already helping to make some big decisions.
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