With prices always falling, Zynga (NASDAQ: ZNGA) is like the Wal-Mart (NYSE: WMT) of social gaming.
Well, not exactly. When Wal-Mart announces a price drop, it usually involves consumer goods. When Zynga announces a price drop, it will -- from this day forward -- most likely refer to its stock.
I am laughing right now. Seriously laughing. Falling-out-of-my-chair laughing. Patting-myself-on-the-back laughing. And it's all because Zynga, that little nubbin of a social gaming company that pulled every dirty trick in the book to gain revenue, is officially in the toilet.
The stock debuted on Friday at a price of $10 and closed at $9.50.
$9.50!
This was the company that many said would be the next big thing in gaming. This was the company that was supposed to prove that traditional console game machines were dead and that social games were the future. Not even iOS gaming could stand up to Zynga, some said.
In October, Zynga's Erik Bethke, a general manager of Mafia Wars 2, spoke fondly of the company's hit franchise. �Our goal with Mafia Wars 2 was to build on the Mafia Wars franchise in a way that feels familiar to our loyal players, yet provides a brand new world of criminal mischief to explore,� Bethke said in a company release. �The game makes fighting a visceral, social experience and wraps it in a story and art style that we think our players will love. Believe us when we say that Mafia Wars 2 is unlike anything Zynga has released before. We can't wait to let our players in on the social mayhem.�
These days, Zynga execs, managers and developers haven't been nearly as talkative. And on Friday, investors weren't amused by the company's performance. Maybe they were turned off by the accounting adjustments, which made Zynga look profitable even though the company isn't making a dime. Maybe it was the simple fact that the social gaming business model � where you can play for free but must pay to acquire select items � is broken. Or maybe investors finally realized that social gaming (as we currently know it) is just a fad.
Or maybe investors were not that excited for Zynga in the first place. Maybe it was all the crazy media � which loves to jump on any bandwagon it can find � that made Zynga seem so darn popular. Let's not forget that it was the media that overemphasized the success of Guitar Hero and Rock Band, which made their respective companies � Activision (NASDAQ: ATVI) and Electronic Arts (NASDAQ: ERTS) � billions of dollars but can no longer survive at retail. Music games, like social games and so many other genres and gaming subsets, proved to be nothing more than a fad that people eventually abandoned.
Zynga is a particularly amusing case, however, because I have been predicting its demise for quite some time. Whereas most video game-related fads provide a degree of enjoyment, Zynga's social games are little more than a time-waster that appeals to the same psychology as gambling.
Before the market close on Friday, Zynga dropped as low as $9 a share. In pre-market trading this morning, the company was down a few pennies, indicating that it could close at another loss. As of 9:48 a.m. EST, Zynga was down 3.83%.
One can only imagine how Mark Turmell � the legendary creator of NBA Jam, NFL Blitz, and SmashTV � feels right now. Turmell left Electronic Arts (which revived both NBA Jam and NFL Blitz after Midway, the games' original publisher, closed) last summer to pursue a gig with Zynga. My assumption � well, my hope � was that Turmell had left with the intent of creating a new, arcade-style sports game that would revolutionize the world of social gaming and transform Zynga into a real video game company.
Instead, we are left with a dying corporation (can we even call it a �video game� company? Is that anywhere near accurate?) that will one day be known as the producer of that farming game people used to waste their lives playing.
Follow me @LouisBedigian
ACTION ITEMS:
Bullish:
Zynga's demise isn't as bad for the IPO market as people think, but it could:
- Ensure that proven game publishers like Activision, Electronic Arts � and even duds like THQ (NASDAQ: THQI) � get more investor support than unproven newcomers.
- Push investors toward iOS developers like Glu Mobile (NASDAQ: GLUU) instead of social game developers.
- Keep smaller development studios from considering an IPO in the coming year.
If Zynga perseveres, however, it might:
- Inspire investors to take a more serious look at all game companies, including those that cater to a Zynga-style (casual) market, such as Majesco (NASDAQ: COOL).
- Force investors to trade more carefully. Traders who subscribe to Benzinga Pro will be instantly alerted to any earnings updates, stock price adjustments or any other changes that occur within these game companies.
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