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Zynga Inc (ZNGA)’s Last Gasp?

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It always looked like a desperate move to me. When online gaming pro Zynga Inc (NASDAQ:ZNGA) decided online gambling was a better bet, I thought it was more of a roll of the dice, a gambler betting the month’s rent at the tables to be able to pay his other bills. Monday’s news that Zynga Inc (NASDAQ:ZNGA) was gutting its employee rolls by nearly 20% shows me it’s on its way out.


The game maker was always too reliant upon Facebook Inc (NASDAQ:FB) for its survival, and having to transition away from that platform to live on its own meant it needed to come up with new ways to make money. I’ve also never been much of a fan of the “freemium” business model, either, and the failure of Glu Mobile Inc. (NASDAQ:GLUU) to get the “free to play, pay to play more” model to work suggests there’s a lot of resistance among gamers to being nickel-and-dimed to death.

Of course, Electronic Arts Inc. (NASDAQ:EA) is one that thinks the free-to-play model is the future in gaming and it has no plans to introduce anything but that this year. It points to its Real Racing 3 game as proof that’s what the market wants and as a result doesn’t plan on offering any premium games in 2013.

Still, there’s intense competition in the field, and gamers can blithely move from one game to the next. It takes a special kind of game experience to create loyalty and developers are constantly having to come up with new games just to keep player interest high while at the same time hoping to hit the next big one. There’s a reason Glu is also jumping into the netherworld of online gambling, and I’m betting it’s going to have just as much success.

Zynga Inc (NASDAQ:ZNGA) said it expects to report a second quarter net loss of between $28.5 million and $39 million, and it hopes that by kneecapping its workforce it will save between $70 million and $80 million annually, pre-tax. Beyond FarmVille, its games business is underperforming and bookings will come at the bottom end of its guidance.

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