Zynga Abandoning Online Real Money Gambling Space

Zynga is in a bad spot. New information revealed through an earnings statement filed Thursday with the Securities and Exchange Commission (SEC) shows that the social game maker has lost a lot of daily active players and had a substantial loss in Q3 2013. In its filing Zynga reported that the number of daily average users (DAU) dropped from 52 million to 39 million in the quarter. This is the lowest number of daily active users since the company started tracking those numbers. Roughly 25 percent of its daily user base has stopped playing Zynga games in a single quarter. Of course, this also means that in the same quarter Zynga's revenues took a substantial hit too. The company reported a net loss of $15.8 million.

The company also revealed in its filing that it would abandon its plans in the online gambling space. Investors expected that the company would move into this sector and become a big player, but it looks like Zynga wants to put its focus squarely on free to play social games.

"Zynga believes its biggest opportunity is to focus on free to play social games," the company wrote in its 8-K filing. "While the company continues to evaluate its real money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real money gaming in the United States. Zynga will continue to evaluate all of its priorities against the growing market opportunity in free, social gaming, including social casino offerings."

The reaction from analysts has been mixed. Brian Blau, an analyst at Gartner Research, tells Ars Technica that Zynga is in a transition period but it still has a future if it can focus on refining and retuning its business.

"Zynga's terrible performance isn't unexpected," Blau told Ars. "They are clearly in a transition, one that will last well into 2014 as they revamp their business and try to salvage what they can. Zynga does have talent, resources, and a real chance, but they first must refocus on their core capabilities, make the transition to mobile, and build out their platform before we start to see improvement in their bottom line. Game companies have resilience, they can regain game players but they first must build that platform and launch new games."

BMO Capital Markets has a different take. In a research report to investors the firm says that it is lowering its estimates for 2013.

"Zynga posted better-than-expected results, but the outlook was disappointing," the report noted. "In our view, Zynga faces an uphill battle to regain its footing as its player base continues to erode dramatically. However, we believe the company’s new CEO, Don Mattrick, will be able to help drive a turnaround at Zynga by harnessing the company’s development talent and analytics capabilities toward its best opportunities, particularly on mobile. As part of that focus, the company has chosen to not pursue real money gaming in the US – however, we expect Zynga to continue pursuing social casino games worldwide and continue testing real money games through its partnership with Bwin in the UK."

Source: Ars Technica


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