Zynga Inc. is one of the leading social game developers in the country. The company gets over 232 million users each month. Some of the popular games it has developed include Treasure Isle, Café World, Zynga Poker, Mafia Wars, CityVille, FrontierVille, FarmVille, and Words with Friends. Zynga’s games are featured on some of the largest platforms such as Android, iPhone, and iPad devices, Yahoo!, MySpace, and Facebook. The organization also raises funds for social causes across the globe and Zynga players have managed to collect over $10 million to date.
Zynga Inc. is in the technology industry, which is very competitive. The users also tend to move on quickly from one game and this creates a unique challenge for the company. At the moment, the company’s success is dependent on the success of Zynga Poker, FarmVille 1, and FarmVille 2. These three games account for more than half of Zynga’s total revenues. Reliance on three games is risky especially because they are a few years old. The company also generates revenue through sales of virtual goods, advertising, and game download fees. Virtual currency is a significant source of revenue for the company. At December 31, 2012, 81% of the company’s revenue was generated through Facebook. This was a decline from the 93% generated through the same platform by December 31, 2011. Zynga’s shares on the NASDAQ are trading at about $4. The share value has gone up by about 86% since the start of the year. This is attributed to the guidance the company got from analysts in the initial and last quarters of the year.
The company’s business has been on the decline especially over the last few years. It is difficult to determine when it will be able to make a turnaround. However, Zynga has embarked on restructuring plans including expense reduction and recruiting a new CEO. These efforts seemed to have made a significant impact on the company’s revenue. Third quarter reports indicate that there was an increase in earnings. The company has also managed to reduce its losses and it is nearly breaking even. In the third quarter of 2013, the company’s net losses were about $68,000. This is a slight increase from the $53 million reported in the second quarter of 2012. The number of monthly unique users, daily users, and monthly users are on the decline and this raises concerns for the company because they play a very important role in its revenues.
The imminent turnaround for the company makes it a suitable option for an investor who is looking for a long-term investment. Hiring Don A. Mattrick from Microsoft was a significant move. The new CEO’s compensation package is attached to the company’s performance and this is reassuring for investors. Investors will have to give the company about a year or more for the restructuring to unfold. In the third quarter of 2013, Zynga reported a 10% increase in its stock. This is significant because the new CEO had just taken over.
The company’s future looks promising as its shifts into a new direction. Zynga has initially thought about entering the mobile gambling market but it has overturned this decision. The company now intends to pay more attention to the mobile gaming market. This is its specialty and it seems like a wise decision to focus on this aspect. The company’s reducing user numbers have been blamed on implementation issues. Social gaming business is very dynamic and this means that the company has to keep reinventing itself to remain competitive.
Zynga Inc. shares are a good buy for an investor who understands the dynamic nature of the social gaming industry. There is a lot of competition in the industry and the company has identified an aspect that it intends to focus on to increase its revenue. It has also embarked on restructuring plans and the effects are already being felt. Zynga’s strategy remains unclear but the company can explore a variety of opportunities. The online gaming market is still relatively new and there are endless possibilities such as mobile monetization. Online gaming users do not limit themselves to a particular brand and this gives companies like Zynga an opportunity to increase their audience. The company has managed to grab people’s attention with games like Farmville and this is makes it a lucrative option for investors who are willing to wait for a while before they get returns.