Those of you who follow me back at my home, MMO Fallout, will be aware that I’ve been paying special attention to recent happenings over at Zynga. To put the news as short as I can: Zynga is replacing their unpopular CEO with an unpopular ex-CEO, and their investors are not happy.
I get a lot of skepticism whenever I talk about Zynga being in financial trouble, and I understand why. Were it not for years of following their finances, I would find it inconceivable that a company boasting upwards of 70 million daily active users somehow can’t get its books in order. To their fans, I likely just look like another gamer joining the bandwagon of Zynga hate.
Luckily I always come prepared with graphs.
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Our story begins in 2012 when Zynga, at the height of its popularity, starts its downward spiraling. Zynga, then valued at $11.5 billion, opened to the public at $10 per share. Two consecutive disappointing quarters later, one market flooded by Zynga’s executives selling off their shares, and the next thing we knew staff were fleeing, investors were dropping out, Zynga’s value was decimated, and the stock was a mere $2.50.
Zynga ended 2012 reporting $1.28 billion in revenue, a net loss of $209 million, and total booking of $1.15 billion (booking refers to mobile sales). The company that had previously been all about monumental growth was now sunsetting games, laying off employees, and shutting down offices around the world. Investors didn’t have much good to say, valuing the company at little more than the cash value of its bank account ($1.6 billion).
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By the middle of 2013, things hadn’t improved. Traffic was now in free-fall (see illustration below), and the recovery in net income that Zynga had made over the past couple of quarters was beginning to fall as revenue and bookings continued their decline (see illustration above).
At this point, Zynga broke the bad news: More office closures, substantial layoffs amounting to 18% of the total staff, and ten more games on the chopping block. More executives and talent jumped ship, and CEO Mark Pincus was stepping down.
The incoming CEO was Don Mattrick, a name you might be familiar with during his time as the President of Worldwide Studios at Electronic Arts, or more recently over the controversy surrounding Microsoft’s proposed always-online DRM for the Xbox One. Mattrick was the one who said “we have a product for people who aren't able to get some form of connectivity; it’s called Xbox 360.”
With its old titles fading into history, Zynga was in desperate need of a new smash hit, one that they’ve been spending money hand over fist in the hopes of uncovering. Studio acquisitions later turned into studio closures, and in the process of following the latest trends, Zynga found themselves the subject of several lawsuits over alleged copyright infringement.
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So what happened? The easiest answer, if you look at the chart above, is that all of the players left. But why? Where did they go?
2012 saw Zynga dealing with something that they really never had to contend with before on Facebook: Meaningful competition. The shift from web based gaming to mobile platforms caught then-CEO Mark Pincus completely by surprise and, in the company’s initial failure to respond, allowed other developers to establish firm ground in the new market.
Hefty mobile devs like King.com and Rovio were taking major slices out of the casual pie, while traditional gaming companies like Ubisoft and Square began seeing the market with games developed for mobile platforms and ports of PC titles.
The casual market began shifting from Farmville-esque games of waiting to games like Angry Birds and Candy Crush that offered more substantial and addictive gameplay with far less intrusive cash shops. Casual gamers had a wider variety of titles that they could pick up and play for a few minutes a day, while the more hardcore crowd moved on to the cheap wave of PC ports that hit the platform.
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The more Zynga searches for its golden goose, the less likely it seems that they will find it. Sequels to their big titles like Cityville and Mafia Wars are dead in the water with their predecessors close behind or already among them, alongside enough other titles to fill a small graveyard (nearly fifty including the games that will shut down at the end of this month).
Which isn’t to say they aren’t trying. In their most recent earnings call, Don Mattrick points to a renewed approach to development for 2015, focusing more on community feedback to even delaying games to allow for popular features to be implemented. 6-10 games are set for launch this year, with lower earnings expected in the first half to turn around in the second.
But Don Mattrick isn’t with Zynga anymore, owing to a 2014 that brought in record losses, lower revenue, further layoffs, and the closure of Zynga’s Chinese branch. In return for Mattrick’s resignation, we learned that Zynga would be bringing back Mark Pincus whose leadership saw 80% of the company’s share value disappear, completely missing the mobile revolution, and disastrous acquisitions like OMGPOP.
When Don Mattrick took the reigns of Zynga back in 2013, the company’s stock briefly bumped up about 11%. On the news of Pincus returning, shares plummeted nearly 18% over the following 24 hours.
With Mark Pincus as controlling shareholder with nearly 62% voting power, the board doesn’t have a choice when it comes to his decisions. On the other side, should Pincus continue Zynga’s poor performance, there also isn’t an avenue to protest aside from jumping ship and resigning.
2015 should be an eventful year for Zynga, with Pincus having to prove that his new run won’t be the same as his last, to investors that have already voiced their low confidence.
