Zynga’s investors are eagerly awaiting the company’s Zynga Unleashed press event today at the social-game giant’s San Francisco headquarters. As the darling of Facebook gaming, Zynga raised $1 billion at $9 billion valuation in December with its initial public offering. Since that time, the company’s stock rose from $10 a share to $14.69, only to plummet to around $6 a share yesterday.
That’s a volatile trading record for such a young company, whose five-year history we chronicled back in December. Today, all eyes will be on Mark Pincus, chief executive of Zynga (pictured above at last fall’s Unleashed event), to see whether he can keep his developers churning out games that can continue to capture the hearts of hundreds of millions of social gamers. If Pincus puts on a good show, you can expect Zynga’s stock price to recover. But if he doesn’t deliver, it could be a tough road back to the company’s IPO valuation.
It isn’t clear why Zynga’s stock has seen such wild swings. It rose to its peak in March on rumors that the legalization of online gambling — should it ever happen across the U.S. — could benefit Zynga, which has the world’s largest online poker game (Zynga Poker) and has been investing in social casino games this year. But the stock dropped since the company’s last quarterly report on April 26; the drop was due in large part to the lackluster reception of Facebook’s IPO and a stall in the social network’s growth. Zynga is still dependent on Facebook for more than 90 percent of its revenues.
But the stock drop hasn’t been all bad. Ten analysts now have buy ratings on the stock, and 10 have neutral ratings, according to Thomson Reuters. Zynga’s fundamentals, reflected in its 253 million monthly active users, have been pretty consistent in the past six months. It still has five times more users than its next closest competitor on Facebook. Zynga’s games still account for eight of the top 10 games in terms of monetization on the social network.
Colin Sebastian, an analyst at Baird Equity Research, said in a report this week that Zynga Unleashed should add “clarity to potential growth drivers for Zynga,” since the company will likely announce new games, talk about its growth beyond Facebook, and offer evidence of how Zynga will constantly try to gain new gamers even as players get tired of its older products.
Zynga has nearly 3,000 employees, with more than 150 seasoned game designers. So Sebastian expects a broader and more diverse software slate than it has had before. In the past, Zynga has had a narrow focus on casual simulation games such as CityVille and FarmVille. But it has launched a couple of new titles in different categories in recent weeks.
Atul Bagga, analyst at Lazard Capital Markets, noted that Zynga’s new Bubble Safari puzzle game has become the largest social game in daily active users. Bagga also thinks Zynga’s “match three” puzzle game Ruby Blast will score a large audience as well, based on strong results for rival games from PopCap and Wooga. Sebastian believes it will add more “mid-core” games for serious gamers and mobile as well. And Bagga said that Zynga’s new slots game is now one of the top-grossing games on iOS (Apple’s iPod, iPad, and iPhone platforms). The success of these games could allay concerns about a declining user base that drove down the stock.
Zynga has also begun recruiting a number of game developers for its Zynga.com platform, which exists on the web outside of Facebook. Sebastian believes that Zynga.com provides a better interface and experience for gamers, and third parties will likely be drawn to Zynga’s big user base and data analytics. Zynga’s growth opportunity lies in advertising revenue, which is well under 10 percent of the company’s business. Mostly, Zynga makes money through virtual goods sales, but new advertising initiatives may change that.
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