FarmVille Maker Zynga Closes the Barn Door Too Late on Escaping Money

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 the FarmVille studio at the Zynga Inc. headquarters in San FranciscoZynga (ZNGA) hit investors with bad news from both sides on Tuesday.

First it was a grim memo announcing that the social gaming leader would be laying off 5% of its employees, closing down an office, scaling back its investments in The Ville, and suspending the development of 13 older titles.

The memo from CEO Mark Pincus to his employees came just around the time that Facebook (FB) was reporting better than expected results.

Zynga investors would typically be cheering a strong showing by the social networking website operator that hosts many of Zynga's most popular games. But peering under the Facebook hood doesn't show a lot of Zynga in the engine.

Facebook impressed investors with a 36% year-over-year surge in advertising revenue, and that's great news for Facebook since online ads make up 86% of its revenue. However, the "payments and other fees revenue" where Zynga factors heavily only grew by 13% over the past year, suffering a 9% sequential decline.

A Farewell to Farms

Pincus didn't single out the baker's dozen of older online games that will be put out to pasture, and that could be a problem for both players and employees.

Morale will take a hit until the dust settles. Gamers may be reluctant to invest time and possibly money in a Zynga game on Facebook or on a smartphone app that will be going away soon.

"This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors," Pincus writes, alluding to other areas where the company will be shaving overhead.

Real Cash is Greater Than Virtual Cash

Zynga hasn't been doing well in recent months. Executives have been leaving. Sequels haven't shown the drawing power of their predecessors. Some titles are peaking too soon in popularity.

However, the one thing that Zynga investors can point to as a silver lining is that most of that money that the company raised by going public at $10 is still there. Seeing its stock shed roughly 75% of its value is rough, but now the company isn't trading for much more than the cash and equivalents on its balance sheet.

Coming off a rough few quarters and writing down half of the value of an ill-advised acquisition earlier this year are disappointing and humbling moves. But at least Zynga can say that it has the greenbacks to keep its social gaming dreams alive.

It may not be much, but for now it's about all that Zynga has to play with.

Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook.





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13 Comments

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Derek

I guess I just don't care? The games were fun in the beginning because you could actually play them and do something. Most of what I've seen now is just spamming your friends inbox with requests for random made up items. Yay I earned another decoration? Was pretty lame after a few days.

November 09 2012 at 6:41 PM Report abuse rate up rate down Reply
slloyd414

The problem is that Zynga NEVER listened to their customers.

October 25 2012 at 9:11 AM Report abuse rate up rate down Reply
gloriousseasons

"Gamers may be reluctant to invest time and possibly money in a Zynga game ..."

>>>>>>>>>>>>>>>>>>>>>>>>>>>

The developers design their games so you can only get so far on your own before you have to spend money to move forward with a game. They frustrate you to death until you throw up your hands and click on that "buy" button and the Paypal account - which thankfully I quit doing when I realized how nuts that was.

October 25 2012 at 8:09 AM Report abuse rate up rate down Reply
gracecfl

If Zynga was smart, they'd hire on the software world's "Mr. Fix It," first. Then they'd be better off outsourcing their games to smaller studios in E. Europe, Asia and South America. He did apply directly to Pincus a few years ago but they didn't respond. Then he said that by end of 2012 Zynga would be in trouble, and he's right. The problem with Zynga is that they got greedy, now they have lost that zyng!

October 25 2012 at 7:06 AM Report abuse rate up rate down Reply
sharisez

Had Zynga not been so rabidly greedy, people like me would still be playing their games. But while I will (and did) spend SOME money to play, there is no way I will spend a couple hundred dollars a month to play ANY game. Especially one that could suddenly disappear, as it seems several of their games are about to do.

October 25 2012 at 4:50 AM Report abuse rate up rate down Reply
budroesdream

there is a god..!! I prayed for the dimise of zynga maker of farmville..the game never works right even when i spend real dollars it still sux..so i will pull out my weegee doll and stab it with a pin chanting,....die zynga die

October 25 2012 at 2:36 AM Report abuse rate up rate down Reply
Hi Catmom!

I can never get into my games and I can't post anything since the post is cut off to the side where I can click on to post. I have repeatedly pressed on the can't post button to no avail. So I quit playing.

October 24 2012 at 11:49 PM Report abuse +1 rate up rate down Reply
charpist5

I never played Farmville and didn't let anyone post on my page about it or invite me, or whatever the heck you do. I always had a hard time believing that adults actually spend their time with stuff like that.

October 24 2012 at 9:44 PM Report abuse +1 rate up rate down Reply
don_johnson15

Zynga and EA/Playfish are the two main game makers on Facebook. EA/Playfish closed Restaurant City when the number of players dropped below 1 million. At one point in time Farmville had over 30 million players. Pet Society from EA/Playfish had 24 million players. Now Pet Society is down to just over 3 million and sinking fast.
When these two companies started to charge for items in the game to make the game experience more fun that is when they started to go downhill. They got greedy.

October 24 2012 at 6:39 PM Report abuse +4 rate up rate down Reply
Sandy

Zynga's first mistake was taking away Pathwords!

October 24 2012 at 4:40 PM Report abuse rate up rate down Reply