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Once upon a time, when Wall Street was buzzing with internet start-ups, and many were doing tremendously well in the market,Zynga (NYSE:ZNGA), an online social gaming network provider,ranked high among the social internet star companies; but alas, the hype and excitement has certainly cooled over the past six months, following poor company stock performances.
Just recently, analysts lowered the company’s price targetby as much as 22%,leaving it to rest at $2.21;this is pitifully more than three quarters off the price at which it was debuted – $10.
The question on the lips of many investors and analysts is- what changed for Zynga, or what did not change? As the fate of the company now entirely rests on the shoulders of Pincus, the co-founder who controls a majority of Zynga’s shares, it has become more obvious that the company has refused to move and operate in line with customers’ demands which are veering more and more towards mobile devices.
Overconfidence, if not complacency, seems to be the company’s major weakness. Having relied for so long on Farmville, a casual Facebook game which has virtually served as the company’s ‘bread and butter’ so to speak, the management simply refused to follow market trendsand in so doing release that more gamers are now interested in games they can play with their friends,and on their mobile devices.
Analysts have pointed out that for the gaming company to bounce back from its long recess and bad market showing, it has to come up with a hit that can do more than excite the increasing number of gamers,most of whom have switched to mobile device platforms.
The over-buoyant workforce of the company also seems to be another problem that is holding down on capitalthe company might have put to better use on research efforts to develop new games. Analysts have even pointed out that the company might need to downsize its current 3,000-strong global workforce, and come up with a leaner but more productive team.
Simply put, the company has banked on the casual game system for much too long. It might have employed some casual game developers and professionals; but as it is now refocusing more on core games, like “Chef Ville” and “The Ville”, it seems only logical that there would be some downsizing as regards employees who are narrowly skilled in casual game development.
Transition from the more traditional web-based game to a new mobile-platform will definitely be complex, but the company might still have too many things working for it for shareholders to dump its stocks; plus the company’s large cash holding of nearly $1.6 billion is enough to ward off rumors of bankruptcy.
