A new GamesBeat event is around the corner! Learn more about what comes next. 


We reported Thursday about Zynga’s financial woes, and now this morning the market is dishing out some punishment to the social-gaming company.

The Farmville creator’s share prices dropped from $2.81 yesterday to a premarket valuation today of $2.29. The stock is currently down 20 percent from yesterday’s close to $2.24. This comes on the news that Zynga believes it will net a loss of $90 million to $105 million in the third quarter of 2012.

“It is clear that Zynga will not be able to counterbalance social-gaming headwinds this year with its success in mobile and its broader network buildout,” R.W. Baird software analyst Colin Sebastian said in a release. “The company’s platform transition could extend well into 2013, requiring the ongoing realignment of resources and alterations to product development.”

Webinar

Three top investment pros open up about what it takes to get your video game funded.

In the wake of Zynga’s huge success, concerns arose related to its overreliance on Facebook. Over 90 percent of its business is a result of the popular social-networking website. It responded by building out its own Zynga.com and mobile-gaming platforms. Those haven’t reproduced the type of results that the developer experienced when it was piggybacking on Mark Zuckerberg’s social giant.

“They have to convince investors that they can balance costs and revenues,” Wedbush Morgan software analyst Michael Pachter told GamesBeat. “Revenues aren’t growing at all, so they have to cut costs and compensate for the lack of growth. Their secondary concern should be how to begin growing again.”

Despite the string of bad news, Sebastian pointed out that the potential growth opportunity presented by Zynga on iOS and Android is too big to ignore. While it’s unlikely that Zynga will ever return to owning the market it helped create (at one point, nine of the 10 most-played games on Facebook were developed by Zynga), it still has a huge potential upside if it can properly capitalize on the huge audiences on smartphones.

“They are far from going out of business, and revenues will be ‘only’ $1.2 billion this year,” Pachter said. “So it’s premature to assume they are in real trouble. They just have a credibility problem with investors.”

Facebook’s stock can’t escape the powerful gravity of the this situation. The gigantic social network gains a significant portion of its revenues from social gaming. At one point, 10 percent of Facebook’s entire revenue came from Zynga users. It’s unclear if a waning Zynga is leaving a void that another developer will step up and fill on Facebook to replace that cash flow.

Zynga will report its official earnings on Oct. 24.

Update: Zynga’s stock slowly floated back up to close down 11.9 percent compared to yesterday’s closing price.

GamesBeat

GamesBeat's creed when covering the game industry is "where passion meets business." What does this mean? We want to tell you how the news matters to you -- not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it. How will you do that? Membership includes access to:
  • Newsletters, such as DeanBeat
  • The wonderful, educational, and fun speakers at our events
  • Networking opportunities
  • Special members-only interviews, chats, and "open office" events with GamesBeat staff
  • Chatting with community members, GamesBeat staff, and other guests in our Discord
  • And maybe even a fun prize or two
  • Introductions to like-minded parties
Become a member