Zynga's Costly Mistake - Part Two
Brandy is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
(Read Part One.)
Draw Something isn't the only card in Zynga's (NASDAQ: ZNGA) deck. The company has several titles that are still attracting large numbers of players. The previously mentioned Words With Friends is holding on to a respectable audience for a game that’s essentially Scrabble. The five-year-old Zynga Poker is maintaining DAUs of 7 million. The recently launched Zynga Slingo, a licensed version of a bingo-slots hybrid game that has existed for nearly 20 years, sits at 3.8 million DAUs but has the potential for growth as it moves further from the beta testing stage.
But this flub is a clear sign to investors that the higher ups at the company don’t really know what they’re doing. Zynga reported its first quarter results two weeks ago and though the numbers beat analyst estimates, there was still $85 million in net losses. Shares dipped slightly the day following the report but slipped further after Draw Something’s losses became clear.
Zynga shares hit a new 52-week low of $7.58 this past Tuesday. Shares closed midweek at $8.00, 20% below its IPO price.
Advancing Competitors
Zynga had a bit of wiggle room in the past due to its codependency on Facebook. But the Facebook app field is changing. In advance of its own IPO filing, Facebook announced a new native App Center that will allow for paid apps to be listed alongside the free-to-play titles previously offered. That change will bring more developers to the platform, encroaching on Zynga’s natural habitat.
Electronic Arts (NASDAQ: EA) has announced its first original third party Facebook game, in conjunction with Insomniac Games. EA has had success on the platform in the past with The Sims Social, which hit highs of 18 million DAUs last year after its release, but has since settled down to 2.7 million. Its acquisition of PopCap last year gives EA access to popular PC titles including Bejeweled, which already exists on Facebook, and Plants vs. Zombies.
EA has the benefit of major brand recognition amongst PC and console gamers. EA’s feeling a bit cocky about its ability to compete with Zynga, as evidenced by CEO John Riccitiello using his own fourth quarter earnings call to question the wisdom behind the OMGPOP purchase. Yes, there was a “salt, meet wound” aspect to it, but Riccitiello’s comments came the same day Zynga hit its 52-week low.
If Zynga wants to prove its good at more than treading familiar waters, it needs to make a (well executed) move soon.
LynBetz has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.
