Game Over for Zynga Inc (ZNGA)

The social game developer Zynga Inc (NASDAQ:ZNGA), known for games such as Farmville, Zynga Poker and Draw Something, is having huge difficulties staying afloat. Recent decisions –hiring of Don Mattrick CEO and firing around 18% of its staff- are indicative of the firm’s current troubles. Evidence is found in the second quarter financial results put forward by the company, with revenue down 31% year-over-year and a net loss at $16 million.

Despite attempts to reduce costs through restructuring, Zynga Inc (NASDAQ:ZNGA)’s main problem resides in its lack of innovation and product development. Competitors in the social gaming industry such as King.com –the company responsible for the popular game Candy Crush Saga, have long surpassed Zynga in number of users. In addition, new releases such as Take-Two Interactive Software, Inc. (NASDAQ:TTWO)´s Grand Theft Auto V, Activision Blizzard, Inc. (NASDAQ:ATVI)´s Call of Duty and Electronic Arts Inc. (NASDAQ:EA)´s Battlefield 4, will produce even more headaches for Don Mattrick, as gamers’ attention will focus on these new products in the coming months.

New Old Scramble

Zynga Inc (NASDAQ:ZNGA)’s attempt to recapture some of its users seems futile. The firm recently presented New Scramble with Friends, a new version of one of its successful games, which is more challenging than its predecessor. However, this new product will hardly bring about an increase in revenue or users, because Zynga’s advertisement strategy consists in promoting new games on games that were already popular. But, the approach will be very hard to implement, since users are declining and several of the company’s games get no hits at all. Hence, a recovery is not in sight, even if new products are developed.

It is hard to say what went wrong with Zynga Inc (NASDAQ:ZNGA), once the biggest social game developer with a bright future. A lack of innovation, which competitors quickly took advantage of, might be seen as one of the reasons why this company is failing. Or, maybe Zynga Inc (NASDAQ:ZNGA) was just another one of those companies puffed up by a series of short term positive results, with no real growth potential behind them. Either way, its current performance and future outlook are grim, with no change in sight.

Disclosure: Pablo Erbar holds no position in any stocks mentioned