Zynga shares have now tumbled by 48% in the past 12 months. The real concern lies in fact that, according to research firm eMarketer, the number of players playing free social games is on the rise and the American market is expected to grow by more than 5% this year. The issue lies in mobile gaming. Zynga have invested heavily over the years in games tailored for desktops and with the use of Facebook’s applications platform, Zynga experienced phenomenal early growth. However, many are now ditching the desktop in favour of mobile platforms, an area where Zynga are much weaker.
Attempting to maintain the success of their desktop operations, whilst developing their mobile platforms in a fiercely competitive market, is a strain on Zygna’s resources. It seems Pincus has decided to sacrifice the desktop in a final push to turn around Zynga’s fortunes. Pincus alludes to this in a note to staff addressing the job losses. Pincus said: “Our opportunity is to make mobile gaming truly social by offering people new, fun ways to meet, play and connect. By reducing our cost structure today we will offer our teams the runway they need to take risks and develop these breakthrough new social experiences.”
It is yet to be seen if the job cuts will be enough for Zynga to halt the slide. It is not the first time Zynga have aggressively cut costs. PokerUpdate reported Zynga’s surprising first quarter profits when it was forecast they would experience heavy losses in the region of $27m. This was due to cost cutting measures; however the longevity of that strategy is up for debate.
Zynga are also suffering from elaborate spending during its successful periods. They reportedly spent $200m for OMGPOP last year, the creators of popular online game Draw Something. The price tag even raised the eyebrows of many Silicon Valley veterans. Outlandish spending on a landmark office building in downtown San Francisco didn’t aid in the lowering of eyebrows either. What has lowered is the confidence in Zynga turning around the slide, along with their share price and first quarter revenue drops of 18%.
Will Zynga have an ace up their sleeve and recover from their problems? It remains to be seen, however, what is clear is Zynga need to stop the rot; otherwise it will be game over for the social gaming giant!