Game Over? Zynga Abandons Online Gambling, User Numbers Plunge

Joe Goldman  |

Zynga (ZNGA)  reported on Thursday a 31 percent drop in revenue and a 39 percent decrease in monthly active users for the second quarter of 2013. The social gaming company also abandoned its pursuit of real money gaming, which sent shares plummeting during after-hours trading.

Zynga’s profit swung to a loss for the quarter, reporting a non-GAAP net loss of $6.13 million or -$0.01 per share, versus the $4.56 million profit or $0.01 per share from the same period a year ago. Revenue for the quarter was $231 million, a 31 percent decrease from the previous year. Analysts were expecting a $0.04 loss, so the quarter was financially somewhat better than expected.

The big surprise of the day, however, was Zynga’s decision to ditch online gambling to focus on fixing its social and free gaming business.

“Zynga believes its biggest opportunity is to focus on free to play social games. While the company continues to evaluate its real money gaming products in the United Kingdom, Zynga is making the focused choice not to pursue a license for real money gaming in the United States,” read Zynga’s press release.

Investors were shocked and disappointed at this announcement because the U.S. gambling market could be worth up to $380 billion, according to Yahoo! finance. As a leader in online gaming, Zynga was expected to become a leader in real money play and seize a sizable piece of this market.

“The decision we made around [real money gaming] really centered around focus. As we looked at the social gaming and free-to-play opportunities, which continues to grow, we’re not executing against that. Really, it just centers around focus,” said David Ko, Zynga’s Chief Operations Officer.

In other news surrounding the earnings report, Zynga released six new titles during the second quarter and currently owns three of the ten most popular games on Facebook (FB) . However, monthly active users plunged 39 percent year-over-year, a shockingly poor number in terms of traffic.

“We’re missing out on the platform growth that Apple, Google, and Facebook are seeing. In short, we can do better,” said newly appointed CEO Mattrick during the conference call, who claimed that Zynga has struggled with business fundamentals over the last year. “We anticipate two to four quarters of volatility as we work through resetting and developing our strategy for growing top line revenue and profit.”

Shares plunged over 15 percent to below $3 as investors booed Zynga’s soft user numbers and decision to shy away from the multi-billion dollar gambling industry.

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