August 1, 2012

Zynga Changes Officer Roles, Faces Lawsuits Over Financials

Lee Rannals for redOrbit.com - Your Universe Online

One thing the Internet has increased other than communication, is the ability for society to adapt, and drop fads. The online gaming company Zynga has learned that lesson the hard way.

Last year, Zynga snagged its Chief Operating Officer John Schappert away from Electronic Arts, stripping him from his role in overseeing game development.

However, the market for purchasing cows on Facebook has started to fizzle, and so has the growth for games like FarmVille, Words with Friends and other social games, so changes have been made.

The news of Scharppert losing his role coincides with two lawsuits that shareholders recently filed against Zynga. These lawsuits claim Zynga kept financial struggles a secret from those who invested in the company.

Zynga shares are down almost 70 percent in just the last year, showing that maybe people are just tired of those devious scrabble users who like to just play words like "Qi" and "Za."

In the company's earnings report, it said that Facebook changed its algorithm to showcase newer Zynga games, like The Ville, to encourage new user sign up.

Facebook depends on Zynga for 12 percent of its revenue, and it has listed the gaming company as one of the key factors in its success in its IPO filing. But, Facebook's popularity and dependence on Zynga wasn't enough for the online gaming company to keep itself from trouble.

Those drawing up the lawsuit claim that when common stock was being offered for sale, Zynga directors were selling stock during the offer period.

The suit claims the common stock of Zynga was at "artificially inflated prices" and the stock declined in value when " the misrepresentations made to the market, and/or the information alleged herein to have been concealed from the market, and/or the effects thereof, were revealed, causing investors´ losses."

In December 2011, when the company completed its IPO, Zynga was valued at $10 billion with stock opening at an initial price of $11 per share. However, its shares dropped 10 percent below IPO on the first day of trading.

The company announced its first outlook for 2012, and had a much more positive outlook for the year than what actually unfolded.

“Bookings are projected to be in the range of $1.35 billion to $1.45 billion," the company wrote in its 2012 projections. "We expect that growth will be weighted towards the back-half of the year with slower sequential growth in the first half of the year.”

The stock price rose to a high of $15.91 per share on March 2, but 10 days later, Zynga filed a secondary offering of 49,414,526 shares for "certain insider shareholders." The stock price later dropped, while Zynga insiders sold over 43 million personally held shares at $12 a share for about $516 million.

After Zynga reported a net loss of $22.8 million in the second quarter of 2012, its stock price dropped to $2.97 per share. The company then drastically lowered its projections for the rest of 2012.

Now, in the midst of a lawsuit, Zynga has announced it is reshuffling its higher-ups in order to "unify" the company, a spokeswoman said.

"We can confirm that in order to unify our company around a multiplatform approach, we reorganized our teams in July to integrate web and mobile groups," said the Zynga spokeswoman in a statement. "Our players expect their favorite games on every platform and we want to unlock everyone in the company to continue moving quickly against the multi platform opportunity."

Schappert will no longer be responsible for the games, but instead that role will be going to Chief Mobile Officer David Ko and Executive Vice President Steve Chiang.