Zynga's weak pivot to mobile, loss of casual gamers turns serious

Sat Oct 6, 2012 2:20am EDT
 
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By Malathi Nayak and Gerry Shih

SAN FRANCISCO (Reuters) - Zynga Inc's inexorable decline over the past six months, capped by a sharp reduction in its 2012 outlook on Thursday, has sharpened interest in what Chief Executive Mark Pincus will do next.

Wall Street's excitement over a game publisher once counted among the stars of the new social Internet has cooled since its December initial public offering. On Friday, analysts slashed their price targets on a stock that dived as much as 22 percent, to $2.21 - more than three-quarters off its $10 debut.

The fate of the company now rests with Pincus, the 46-year-old co-founder who controls a majority voting stake. Analysts say he needs to downsize its current 3,000-strong global workforce and come up with a hit that can captivate the growing number of players now moving to mobile devices, where its presence is relatively weak.

Zynga did launch several such games this year, including "The Ville" and "ChefVille," and is working on several more. On Thursday, Pincus emphasized to employees in a company-wide memo that Zynga would be "continuing to invest in its mobile games business."

But he warned that the company will make "targeted cost reductions," which analysts interpreted to mean layoffs as Pincus shifts Zynga away from the "casual" Facebook games, like "FarmVille," that were the company's bread-and-butter for years.

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

The transition will be jarring for a company that moved early to build a formidable business almost completely on top of Facebook's burgeoning platform. "FarmVille," "FrontierVille," "Zynga Poker," "Mafia Wars" and "CityVille" took off primarily as Facebook games on personal computers. They accounted for 83 percent of total revenue last year.

Zynga has not been able to reverse the tide of users abandoning its previously lucrative Web-based games for offerings on smartphones or games from competing publishers.   Continued...

 
The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco, California April 26, 2012. REUTERS/Robert Galbraith