Zynga may not stay

Zynga (NASDAQ: ZNGA) may be losing its chance to operate as an independent company. All of the metrics that would show Zynga might make even desperate progress were missing in its latest quarterly report.

In the June quarter, revenue plunged from $231 mln last year to $153 mln. Zynga’s net loss rose from $16 mln to $63 mln. Other measurement were just as ugly:

- Daily active users (DAUs) in the second quarter of 2014 were 29 mln, compared to 39 mln in the second quarter of 2013. On a consecutive quarter basis, DAUs were up 0.4% from 28 mln in the first quarter of 2014.

- Monthly active users (MAUs) in the second quarter of 2014 were 130 mln, compared to 187 mln in the second quarter of 2013. On a consecutive quarter basis, MAUs were up 6% from 123 mln in the first quarter of 2014.

- Monthly unique users (MUUs) in the second quarter of 2014 were 89 mln, compared to 123 mln in the second quarter of 2013. On a consecutive quarter basis, MUUs were up 2% from 86 mln in the first quarter of 2014.

The future looks equally bleak. For the full year, Zynga reported: “Bookings are projected to be in the range of $695 mln to $725 mln, compared to previous expectation between $770 mln to $810 mln” The only strength Zynga has is its balance sheet which has $725 mln in cash and marketable securities. Zynga’s current market cap is $2.6 bln.

In a recent analysis, the 24/7 Wall St. editors wrote in ‘10 Brands That Will Disappear in 2015’: “Zynga can be considered the single greatest social media failure among recent IPOs. The leading provider of games on Facebook has been unable to match the success of Farmville, its first hit. Facebook also ended its relationship with the gaming company in 2012, effectively limiting Zynga’s access to the social network’s 1 bln users and making it harder for the company to promote its games.

“The company moved slowly into the mobile platform, and after it failed to create big hits of its own, it acquired popular titles such as ‘Draw Something’ and ‘Words With Friends’. But new rivals like King Digital, maker of popular mobile game Candy Crush, continue to crowd the market. Similarly, traditional game companies like Electronic Arts have also begun to migrate their titles to mobile devices, challenging the social gaming company’s position.”

The question is whether Zynga has enough demand for its products to support it as an independent public company. The company reported daily active users in the first quarter of 2014 were down nearly 50% to 28 mln, compared to 52 mln in the first quarter of 2013. Zynga lost $61 mln in the first quarter of the year, against a profit of $4 mln in the same period a year ago. Since early March, Zynga stock has dropped 45%, which while indicative of its troubles, also makes it a more attractive takeover target.

Zynga’s shares are off 35% in the last six months. Our evaluation appears to become more and more likely as each quarter passes.