GamesBeat

Analyst: Zynga’s new-CEO honeymoon could end soon as it continues to bleed users

Zynga's FarmVille game in action.

Above: Zynga's FarmVille game in action.

Image Credit: Zynga

Social-game publisher Zynga will report its financial results for its fiscal third quarter later this month, and at least one analyst is expecting some disappointing news.

The company is in a transitional phase under new chief executive officer Don Mattrick. He’s led the company since July, and investors welcomed Microsoft’s former Xbox boss with an increased stock price. Zynga shares are currently trading at around $3.80, but that price might start to dive soon.

“Shares of Zynga are up 20 percent since it reported Q2 results, which we believe is largely attributable to investor optimism that Don Mattrick can turnaround the company versus any recent fundamental improvements,” Eilers Research analyst Adam Krejcik wrote in a note to investors.

The analyst also points out that traders are likely feeling positive about social gaming due to the recent $3 billion valuation of Clash of Clans developer SuperCell. That studio sold a 51 percent stake in itself to Japanese investment firm SoftBank and Puzzle & Dragons developer GungHo Online Entertainment for $1.53 billion.

The Mattrick and SuperCell high might start wearing off for Zynga when it announces its Q3 earnings on Oct. 24, according to Krejcik. He is expecting that Zynga will report an earning-per-share loss of 7 cents. Krejcik also anticipates the company will reveal a decline of around 30 percent for Zynga’s Facebook earnings quarter-over-quarter. That loss in bookings is due to an exodus of players, according to Eilers Research’s findings.

Zynga tentpole FarmVille 2 saw a drop in daily active users (DAU) of 24 percent compared to Q2, and Zynga Poker, the publisher’s biggest game, saw a 23 percent drop in daily active users. These figures come from Eilers’ internal research. To maintain investor faith, Mattrick and his executive team will have to address how it will turn around this negative trend.

“We believe the most important takeaways from the conference call will be how Zynga intends to stop user attrition in Poker, improving the performance of its mobile games, and new game pipeline and strategy,” wrote Krejcik. “Specifically, we believe investors acquiring shares of Zynga at current levels are largely doing so in hopes that the next round of Mattrick-led games will be relatively successful.”

Krejcik also notes that investors would welcome any insight from Zynga about how its upcoming games will differ from its previous releases.


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