Zynga Sees Stock Plummet After Cancelling Online Gambling Plans
July 28, 2013

Zynga Sees Stock Plummet After Canceling Online Gambling Plans

redOrbit Staff & Wire Reports - Your Universe Online

Zynga's announcement it would be abandoning plans to enter the online gambling business in the US had investors cashing in their chips, as shares of the Farmville developer fell 14 percent in Nasdaq trading on Friday.

The San Francisco-based social network game developer saw shares close at $3.01 after early trading saw the company's stock plummet as much as 20 percent (to $2.81 per share), according to CNBC.com and Bloomberg reports.

"While the company continues to evaluate its real-money gaming products in the UK test, Zynga is making a focused choice not to pursue a license for real-money gaming in the US," the company said in a statement. Shares had surged by nearly 50 percent through Thursday, based on optimism online betting could help Zynga overcome its declining social gaming business, he added.

Zynga lost approximately 40 percent of its active monthly user base during the second quarter, and also saw revenues fall by approximately 20 percent, according to Reuters. Conversely, Facebook (which was responsible for 86 percent of Zynga's revenue last year) experienced a 21 percent increase in monthly active users to 1.15 billion.

"The games developer has been trying to establish a more independent network, even at the risk of getting less visitors from Facebook," the news organization said. Due to the industry's shift in focus from social gaming to mobile gaming, Zynga has found itself unable to duplicate the success it enjoyed based on "great network effects and first-mover advantage" on Facebook, Macquarie analysts told Reuters.

Eyeing online gambling as a possible new revenue source, Zynga officials reportedly took the first steps towards obtaining a gambling license in Nevada last year. However, Wedbush Securities analyst Michael Pachter said the change-of-course could be due to the fact the company might recognize they will not be able to obtain a license, as well as an increased sense of urgency to revitalize the company's financial situation.

"We need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company," new Zynga CEO Don Mattrick, who left Microsoft's Xbox gaming division to replace founder Mark Pincus last month, told BBC News following the release of the financial report.

Last month, Zynga announced it was laying off 520 workers, or approximately 20 percent of the company's entire workforce. Two years ago, the company had 72 million daily active users, according Alex Wilhelm of TechCrunch. During the second quarter of 2012, that number fell to 52 million, and now it has dipped to just 39 million. Likewise, revenue dropped more than $100 million to $231 million, he added.

"This is not Zynga's lowest point. The company's 52 week low rests at $2.01 per share, at which point Zynga was worth less than $2 billion," Wilhelm said, noting the company's stock "has declined around 80 percent since its all-time high... Whether Zynga can pull out of its current slide is an open question."