Zynga Shares Fall Ahead Of Expected Q3 Loss

Zynga shares have plummeted after the social game developer slashed its 2012 outlook for the second time, raising questions about its future.

The company has written off half of the value of OMGPOP, the developer of popular mobile game Draw Something which it acquired earlier this year for $182 million, and expects to make a loss in the third quarter.

The news is likely to concern Facebook, which currently receives around 15 percent of its revenue from micro transactions used to purchase virtual goods in Zynga’s catalogue of web-based games including Farmville. Facebook has warned that a change in the relationship between its users and the developer could have a significant impact on its financial results.

Zynga Shares Decline

The problems have arisen due to players of games such as Farmville defecting to rival titles as well as competition from smartphones.  Facebook games accounted for 83 percent of Zynga’s $332.4 million revenue last year, but Zynga has identified mobile as an area which can reverse its fortunes.

In an internal memo, co-founder and CEO Mark Pincus said that the company would continue to invest in mobile development where its presence is still weak.  However it is expected that the company’s 3,000-strong workforce will be downsized after he warned of “targeted cost reductions.”

Despite the bleak outlook, Zynga still has cash reserves of $1.6 billion and its revenues are substantial. The number of monthly-paying players actually increased from 3.5 million to 4.1 million in the quarter, although this would have declined but for the acquisition of OMGPOP.

Gambling on its future

Another area that Zynga is targeting is online gambling. Zynga Poker is currently the world’s largest online poker game and accounted for 18 percent of total revenues last year, second only to Farmville, which generated 29 percent.

However Zynga Poker uses virtual currency rather than real money as online gambling might not be legalised for another two years in the US. The company has instead targeted territories such as the UK and France, where such activity is permitted, and plans to release its first related products in early 2013.

Zynga’s stock has fallen by 80 percent in the last year and is currently valued at $1.88 billion, increasing speculation that it is ripe for a takeover. However the uncertainty about its future and the mixed results of recent social gaming deals may discourage prospective buyers.

Google has seen online games as a way of attracting users to its social network Google+. It has courted a number of developers, including Zynga, to its platform, offering them a greater cut of micro transactions carried out on the network.

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Steve McCaskill

Steve McCaskill is editor of TechWeekEurope and ChannelBiz. He joined as a reporter in 2011 and covers all areas of IT, with a particular interest in telecommunications, mobile and networking, along with sports technology.

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