Zynga may not stay

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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