Will Zynga Get Lucky This Time?
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems that Zynga (NASDAQ: ZNGA) is now attempting change in strategy in a desperate attempt to pull off some sort of a turnaround. Recently, the company announced the acquisition of gaming studio “A Bit Lucky”. Though the terms of the deal were not revealed, the acquisition price is supposed to be around $20 million. So how is this any different from the numerous acquisitions the company has made in the past?
Well, A Bit Lucky is a small gaming studio which makes “mid-core” games. It’s kind of in between hard-core games like Need for Speed and casual ones like Cityville or Farmville. So will this shift towards the mid-core gaming market really help Zynga in any way?
Zynga used to make a killing out of games such as Farmville and Cityville. But with the popularity of these games waning by the day, the company decided to enter the mid-core gaming market. Unlike casual gaming, the mid-core segment is typical of gamers who dedicate relatively more time in playing games which translates into higher revenue. But more importantly, gamers in this space tend to be more loyal, so apparently Zynga doesn’t have to worry too much about retaining active users.
Now all this sounds very nice on paper, just as the rest of Zynga’s previous acquisitions, which failed to add any sort of shareholder value. Take for example OMGPOP, which lost a lot of gamers after it was acquired by Zynga.
And besides throwing away precious cash after acquisitions, the company has just added to shareholder pain by constantly diluting its equity base through the issuance of stock.
But the question is - Will Zynga’s acquisition of “A Bit Lucky” make any difference?
Well, it’s a little hard to be positive, given that this news came right after the departure of many senior executives. Traversing the mid-core segment isn’t going to be a cake walk with seasoned competitors such as Electronic Arts (NASDAQ: EA) breathing down Zynga's back. Last year, EA bought a mid-core game developer KlickNation to build upon its strength in the social gaming arena on Facebook. It also recently acquired online gaming studio ESN which should boost expertise in the cloud based gaming segment. And besides facing stiff competition from EA, Zynga is also being sued by the company for unfairly copying elements of its “Sims” game.
But besides Zynga's tough competition, I’m a also a little worried about the company's attempts to reduce its dependence on Facebook (NASDAQ: FB). While this may sound like the right thing to do in the long run, I’m not sure whether Zynga will be able to survive at all without reaching out to a vast audience of socially connected users. Let’s face it; Zynga would practically be zilch without Facebook’s platform.
Facebook has been experiencing problems of its own too. Like Zynga, the company's stock price has plummeted drastically from its IPO price. The social networking giant is facing the challenge of increasing advertising revenue in the face of more users going online through their mobile devices. Facebook hasn't been able to properly monetize the mobile version of its platform as well as its full desktop version.
The Foolish Bottom line
Zynga is feeling the pressure from investors to make some sort of improvement, and I suspect that this pressure has lead to many acquisitions which may not have been fully thought through. Having said that, I feel that Zynga’s acquisition of A Bit Lucky could set it on the right path towards recovery. Maybe the mid-core gaming segment would work wonders. But as long as I see red on the bottom-line, I wouldn’t start building hopes of a turnaround as yet.
So what do you guys think of Zynga's latest acquisition? Feel free to express yourself in the coments section below.
Know What You Own
Zynga's post-IPO performance has been dreadful, and investors are beginning to wonder if it's game-over for this newly public company. Being so closely related to the world's largest social network can be a blessing and a curse at the same time. You can learn everything you need to know about this company and whether they're a buy or a sell in The Motley Fool’s new premium research report. Don't even think about picking up shares before you read what the Fool’s top tech analyst has to say about Zynga. Click here to access your copy.
kekidf has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.