Zynga’s Ship is Sinking: Is Cost Cutting Enough to Save It?
Making good on its announcement that it would sunset 13 games as part of a broad cost-cutting strategy, social game developer Zynga (NASDAQ:ZNGA) is beginning to turn off games and pull titles from app stores, upsetting many users but apparently pleasing investors.
Shares of Zynga climbed as much as 3.2 percent in Monday morning trading as news of the cost-cutting measure made the rounds. Zynga’s 75 percent fall from grace consistently made headlines throughout 2012, and it’s only recently that speculation has grown that the stock may have bottomed out.
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At the end of October, after an exodus of users and employee talent, CEO Mark Pincus announced the cost-cutting plan that included closing over a dozen titles, laying off about 5 percent of the company’s workforce, and “more stringent budget and resource allocation around new games and partner projects.” Many investors expected Zynga to give up the ghost — social gaming didn’t live up to the hype, trends changed, and the company couldn’t figure out how to monetize. The model that launched one of the most-launched tech IPOs in recent history fell apart.
A recent bad omen was the recent renegotiation of Zynga’s contract with Facebook (NASDAQ:FB), which the gaming company had been dependent on as a platform and marketing outlet. The social network has been suffering growing pains of its own, and the once mutually-beneficial adolescent romance between the two companies has come to a natural end. Users are just not interfacing with the platform the same way they used to.
But the company isn’t ready to give up. Curbing costs is just one step of what looks like a multi-tiered reformatting of the gaming company. In September, Zynga announced a partnership with RocketPlay, a creator of social sports-betting games, to release Sports Casio. The game currently only uses virtual currency but has ambitions to built out a robust second-screen real-money gambling market focused around ever-popular pro-sports leagues…