Zynga shares continue to disappoint

The online game developer hasn't been able to match its IPO price lately.

By Kim Peterson Jan 10, 2012 9:41AM
Image: Couple with laptop (© Corbis)Zynga (ZNGA) continues to cement its place as the biggest IPO failure of 2011.

The online game developer, known for its "Mafia Wars" and "FarmVille" franchises, saw shares drop 9% Monday to just $8 -- 20% below its IPO price of $10 a share.

Is Zynga getting a bad rap? After all, as Forbes points out, Zynga owns the top five games played on Facebook in terms of daily active users. About 95% of its revenue comes from Facebook, in fact. But being popular on Facebook is a far cry from having the steady, growing profit stream that investors like to see.

Check out the following video for more investor concerns about Zynga.

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Zynga is now trapped in a cash death spiral. Forbes' Dave Thier writes that every dollar the company makes is going to cost more than the one that came before it.

Perhaps no one is feeling the pain more than Morgan Stanley (MS), which revealed last week that it owns some 16 million class A shares of Zynga, or 16% of the company. On top of that, Morgan Stanley's mutual funds bought 5.3 million Zynga shares for about $14 each -- and probably thought they were getting a great deal.

Zynga is trying to move beyond Facebook, and last week unveiled a new word game called "Scramble with Friends." It's another title for users who love Zynga's other games, "Words with Friends" and "Hanging with Friends."

One analyst estimates that Zynga ended the year with about 5% fewer users on Facebook compared with 2010. Another bad sign.

Analyst Ben Schachter with the Macquarie Group has more bad news. Only 2.2% of Zynga's 150 million users actually pay for the games, he wrote. That doesn't bode well for a company trying to compete with new game offerings from Apple (AAPL) and other competitors.

I've heard people argue that investors just don't understand Zynga. They aren't playing "Mafia Wars" all day, and they can't see the appeal that Zynga's games have. But what investors do understand are subscriber growth and revenue trends. If they aren't going in the right direction, Zynga shares will head south and never come back.

Zynga's best days might already have passed.
3Comments
Jan 10, 2012 5:11PM
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The reason that no one uses the Zynga games is because they keep adding things and the bigger they try to get the more the games slow down the computers and they all crash on me at least three times a day.  comments can be seen on everyones Facebook accounts in this regard.

 

Jan 26, 2012 8:21AM
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It's the CUSTOMER SERVICE. Zynga treats its customers like garbage. They take us for granted. I've played MW for 3 years & I have always said the game will finally go offline for good due to the immensely poor way Zynga treats its customers, INCLUDING paying customers. I used to believe that silly rumor that Zynga treats its paying customers SO much better but that is a total LIE. Zynga is 2nd ONLY to Facebook in its disgustingly almost CRIMINALLY bad treatment of customers and players. It's a shame FB AND ZYNGA have no pride in the integrity of their companies. I remember when that was an important thing, to be proud of the quality of your business and to value the reputation of your company. After all, what your CUSTOMERS think of your business is ALL THAT REALLY MATTERS in the end, capiche ? THAT ends up being your BOTTOM LINE. 
Jan 10, 2012 5:39PM
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I've only been playing Zynga games for a short period of time In my opinion their prices are too high for what you get. Look at farmville, you can get a cute virtual horse for 96 farmville cash. Depending on the deal you get that could equal out to $10 to $30 of real money.

 

The other thing I think that holds people back is the fact they change the value of Farmville cash from real cash. I have a store and if I took ten dollars from people when they walked in and gave them 30 store cash and then charged them 30 store cash for a $10 item they would feel like they are getting ripped off. They would feel like they were spending $30 real money, It's psychological but that's just how it works.

 

Just my 2 cents worth :)

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