Zynga Heads for Pitsville
Zynga's share price dropped to a record low after an analyst's research note revealed that its usage declined in May due to players migrating to mobile platforms. At close of business on Tuesday, the stock had dropped to US$4.98 per unit, the lowest level since its December initial public offering at $10 per share. Wednesday morning the stock made a slight recovery, reaching $5.20 per share.
Even if the share price makes further gains, however, it is clearly facing a long-term challenge. Daily active use for its games dropped 8.2 percent in May -- the second consecutive month-over-month drop, noted Cowen Group analyst Doug Creutz.
The lure of mobile is the reason, he concluded, noting that while Zynga is aggressively pursuing mobile games, it is unclear whether those efforts will be enough.
In short, the question that has dogged Zynga since before it launched its IPO has yet to be answered: Can it exist without Facebook?
Too Close to Facebook
Indeed, some observers say Zynga's stock drop is related to Facebook's lackluster share price performance since its inauspicious public market debut.
"Zynga's share price plummet, I believe, is a reflection of Facebook's poor performance," Kenneth C. Wisnefski, founder and CEO of WebiMax, told the E-Commerce Times. "Thirteen percent of Facebook's revenue stems from their partnership with Zynga and their gaming interface, notably 'Farmville' and others."
The Lure of Mobile
Mobile could be a deciding factor in Zynga's ultimate fate.
"Gamers are thinking, 'Why be tied to Zynga's browser-based games when I can put my cool mobile games in my pocket and play them anytime -- in front of the TV, during dinner with the parents, and in particular, during a boring class?'" Larry Iser, partner with Kinsella Weitzman Iser Kump & Aldisert, told the E-Commerce Times.
"Investors can't miss the one-two punch," he added. "Browser-based games may be a relic of the past, and Zynga's major platform, Facebook, is off to a rocky start as a public entity."
Not that Zynga hasn't been trying to expand its mobile reach. In March, it acquired social game developer OMGPOP, maker of the wildly popular mobile game, "Draw Something," along with 35 additional social games, for a price speculated to be between $200 million and $250 million. The larger goal of the acquisition, besides bringing "Draw Something" into its fold, is to have OMGPOP build new mobile products for Zynga.
It has also continued to build games for Facebook's mobile app, such as "ZyngaPoker Mobile Web," "Words With Friends HTML5" and "Farmville Express."
There are larger concerns for Zynga, however, even if it masters the mobile piece. Social gaming may be losing its appeal, or at least entering a more mature phase, said Wisnefski.
The rise of other interactive social networks, notably Pinterest, is one reason, he observed.
Social media users have a finite attention span and limited time to devote to these networks, Wisnefski pointed out. Now the trend is toward a different type of social engagement.
Another problem is that Zynga has not replicated the wild success of its early hit games. "'Farmville,' in, particular, is overfarmed," Mike Tarsala, a chartered market technician at Covestor, told the E-Commerce Times.
"I think it's too early to say Facebook gaming is dead, though," he added. "A big move to mobile gaming is coming, but it won't happen overnight."
Still, Zynga needs to move fast if it wants to right its ship, said Kris Tuttle, who manages the SoundView Technology model on Covestor.
Social gaming companies need to have their best game play on mobile devices, especially the iPad and iPhone, as well the Web and social platforms like Facebook, he told the E-Commerce Times.
Right now, "investors also don't have clarity over how successful Zynga will or won't be on these other platforms," he told the E-Commerce Times.
Zynga did not respond to our request to comment for this story.