Home Why Zynga is Shedding Users

Why Zynga is Shedding Users

Social gaming company Zynga had an outstanding 2011, leading to a well-hyped IPO in December. But Zynga’s biggest risk was always an over-reliance on Facebook, with most of its revenue and users coming from the social network. It’s now six months after Zynga’s IPO and its stock price has halved, currently sitting at under $5. That’s because many of its high profile gaming products are tanking.

At the time of its IPO in mid-December, Zynga had the top five games on Facebook by daily active users. But, according to app tracking website AppData, three of those five apps have declined dramatically in Daily Active Users (DAI) since then.

All of Zynga’s main “ville” products have lost a lot of users over the past six months. None moreso than the previous leader in Facebook’s gaming category, Cityville, which echoed Zynga’s share price drop to fall from over 10 million to below 5 million daily active users.

All three Ville games have now fallen out of the top 10 Facebook apps by DAI. It’s not all bad news, as Zynga still has four apps in the top 10: Texas HoldEm Poker (3), Words With Friends (4), Bubble Safari (5) and Draw Something (6).

Of the four apps still in the top 10, only one has shown strong growth over the past month: a new arcade-style game called Bubble Safari, which has quickly amassed 6 million active users since its launch in May. In fact it’s currently the top growing app on Facebook, by total users.

Mercifully, for the average Facebook user, Farmville continues to decline – from 4.6 million DAI to 4.1 million over the past month. But of most concern to Zynga is Draw Something, the Pictionary-like game which it acquired for $183 million in March this year. Its usage has been falling ever since. Just in the past month, the daily active users of Draw Something fell from 9 million to just over 5 million. Zynga has attempted to stop the freefall by adding 12 languages to Draw Something this week, in order to entice more global users.

The main reason for Zynga’s stock price fall this week was a report from financial analyst firm Cowen and Company entitled “Facebook Gaming in Accelerating User Tailspin.” The report stated that Zynga’s social gaming daily active users declined by 8.2 percent to 54.2 million in May. According to Cowen analyst Doug Creutz, that’s because casual gamers are moving away from the Facebook platform to play games on their smartphones and tablets. However Creutz hedges his bets, by noting that Zynga is “aggressively pursuing mobile game development.” Accordingly, he has a “Neutral” rating on Zynga shares.

The upshot is that Zynga’s fortunes are still ultimately tied to Facebook – and vice versa. Social gaming is moving onto smartphones and tablets, which is also where Facebook wants to expand its social networking platform. The reality is that both Facebook and Zynga need to aggressively expand onto smartphones and tablets, in order to get their stock prices moving upwards again.

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