Zynga Folds Hand On Gambling

Games

If you’ve ever played the Zynga game’s Farmville or Words with Friends, then you know how those games once addicting have started to fade. Zynga’s stocks fell due to the abandonment of real money gaming.

With new CEO Don Mattrick fresh at the helm, Zynga is placing bets on the company’s ability to rejuvenate its social-games business and to knock out some new hits, and won’t be playing its wild card for pursuing real-money casino games in the U.S. But investors may not like the play, as the company’s stock dropped about 14% in after-hours trading shortly after it made the announcement during its earnings report on Thursday.

Mattrick, in his first earnings call as CEO after leaving his post as head of Microsoft‘s entertainment division, said he has been a fan of Zynga since he met Zynga founder Mark Pincus five years ago. ”Joining Zynga is a once-in-a-lifetime opportunity to partner with a founder like Mark,” Mattrick said. He made the remarks as Zynga announced its second quarter earnings, which beat expectations.

Mattrick is “getting under the hood” and reviewing Zynga’s entire business, including its game pipeline, to determine where to make changes and how to improve the quality of games. He’s placed his desk in the middle of the FarmVille team to get in the middle of the action. “I’m also going to use the next 90 days to assess and reset our product pipeline,” he said. In other words, cut games that aren’t producing or won’t be big hits. Moving games to mobile continues to be a top priority–one that the company has previously expressed but hasn’t happened quickly enough.

“We anticipate two to four quarters of volatility as we work through resetting and developing our strategy for growing topline revenue and profit. I’ll be detailing more of this incoming calls and look forward to keeping you up to date on our progress. Getting a business back on track isn’t easy and isn’t quick,” said Mattrick.

“The decision we made around real money gaming centered around focus. We looked at social gaming, free-to-play. It continues to grow and we’re not executing against that. It really centered around focus,” said Zynga COO David Ko.

The gaming move was a surprise announcement, after the company has been talking about aggressively moving into gambling in the U.S. for some time. Zynga’s top revenue generating games are Zynga Poker, Farmville and Farmville 2 with 20%, 16% and 15% of online game revenues, respectively. No other games had 10% of revenue in the quarter.

The company’s shares dived about 14 percent to $3.02 in afterhours trading, or about 70 percent off its $10 IPO price. “Zynga is making the focused choice not to pursue a license for real money gaming in the United States,” the company said in a statement. “Zynga will continue to evaluate all of its priorities against the growing market opportunity in free, social gaming, including social casino offerings.”

But real-money gaming continues to be illegal in many U.S. states, despite signs state regulators will begin to permit games such as poker. Zynga, whose first game was an online version of poker, could wind up in a regulatory tangle for months, if not years. Its withdrawal from the scene deals another blow to a company that has steadily lost the endorsement of Wall Street.

Forrest L. Rawls

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