It wasn’t all that long ago that Zynga (NASDAQ: ZNGA) was flying high on the wave of social media, piggybacking on the success of Facebook to raise about $1 billion in a December 2011 IPO that valued the company at around $7 billion. It was at the time the largest U.S. Internet introduction since that of Google (NASDAQ: GOOG).
Today, it seems that Wall Street primarily judges a social media company’s value on its ability to capitalize on the movement to hand-held instruments, and it doesn’t play favorites. A year ago the stock price of the newly public Facebook (NASDAQ: FB) was reeling because Wall Street didn’t believe that the social-media juggernaut had adequately recognized the import of the worldwide mobile movement.
Now it’s Zynga’s turn in the harsh spotlight. Unless the San Francisco-based game-maker can adjust to the mobile-devices revolution, it is poised to become the latest social media star to fall victim to the changing times.
The Street will not drink the Kool-Aid of a hot company that has failed to figure out The Next Big Thing, and it is plainly punishing Zynga’s shareholders for the management’s negligence. The company’s shares are now stuck in the quicksand of a $2.80 to $3.00 trading range because investors want proof that Chief Executive Mark Pincus has put together the pieces of the mobile puzzle.
CEO Mark Pincus tried to develop follow-ups to replace the success of familiar one-time wunderkinds such as FarmVille and Mafia Wars. He also bought OMGPOP and its hit "Draw Something" app to try to secure a position of strength in mobile gaming. But the online world evolved in the year and a half since Zynga went public, casual online gamers remain as fickle as ever and Pincus earlier this month announced more than 500 layoffs, or about 18 percent of the company, as part of a drastic restructuring aimed at reviving the business.
The task for Zynga is emblematic of what the entire gaming industry – including console makers Microsoft and Sony – is experiencing. As Wired noted: “Consoles aren’t going to disappear overnight. But it’s becoming increasingly apparent to many in the industry that the new crop of consoles now hitting the market – from Nintendo’s Wii U and Sony’s PlayStation to Microsoft’s Xbox slated for later this year – will be the first generation of consoles that won’t outsell their predecessors.”
As always, the companies that innovate on hand-held devices will prove to be the long-term winners. They must recognize what mobile consumers want – speed, efficiency and convenience – and tailor both their products and marketing to accompany the shift.
Zynga is not catching up. Its "Farmville" and "CityVille" offerings have lost their luster and revenue from these games has tumbled almost $85 million in the first quarter. The latest indignity: Zynga no longer rules the Facebook gaming charts, as Midasplayer International Holding Co., better known as King, has just taken the top spot with its (apparently) addictive "Candy Crush Saga" game. (Not surprisingly, King is planning an IPO, according to The Wall Street Journal.)
Nor does Zynga have one of the top 10 games on Google Play, the app store for Android-centric smartphones. Zynga’s recent “Running with Friends” ranked 19th earlier this month among the paid apps at Apple’s App Store, representing the top-ranking game for Zynga in that market.
Pincus must prove to the investment community that he is capable of leading Zynga beyond the low-hanging fruit of Facebook and forge an exciting mobile strategy. Mobile game sales are expected to grow 13.5 percent this year to nearly $10 billion, according to PwC data cited by the Journal. The market is there if Zynga can figure out how to tap into it.
Yes, of course, every CEO faces this challenge. But Pincus has more to live up to than most. Things have deteriorated to the point where MarketWatch’s veteran technology columnist Therese Poletti headlined her June 6 column: “Zynga Investors Are Stuck With Mark Pincus.”
We all know Zynga. Either you it or you hate it. There is no middle ground. If you’re hooked on "FarmVille 2" or "Mafia Wars" or another one of Zynga’s offerings, you love the diversion. On the other hand, if (like me) you are far too sophisticated and busy communicating on Facebook and Twitter (ahem!), you look down on the multitudes who not only share a fixation for Zynga’s stuff – but go so far as to annoyingly beseech you to join their ranks. (Let it be known, I have un-friended actual friends on Facebook because they wouldn’t stop trying to proselytize me. Proselytize? Indeed, many people still approach Zynga’s games with a quasi-religious fervor.)
Can Zynga make a comeback? Long gone are the Street’s lofty expectations and the many pronouncements that preceded the company’s initial public offering. Now, one question dogs Zynga: How you gonna keep ‘em down on the FarmVille when they’ve seen the mobile revolution?