Are Zynga’s Struggles a Sign of Downward Trends?

Zynga has not only fallen from the lofty position they once held, but much further than expected. VentureBeat referred to their latest earning report as “shocking” and the stock price as “cratering.” Zynga blamed several factors, ranging from changes on Facebook to underwhelming returns from the acquisition of the game Draw Something.

The Vile Screenshot

Zynga’s latest game, “The Ville.”

The bigger question is if this just indicates a stumble by Zynga or a larger industry trend. The chief executive of mobile games site Tylted is certainly concerned, saying, “This isn’t good for the rest of the industry.” One of Macquarie Research’s analysts says the news recalls “our worst fears about the stability of the business model and competitive positioning.”

There are also concerns that this doesn’t bode well for the future of Facebook. As noted by the Pittsburgh Post-Gazette, Facebook and Zynga are closely connected. Zynga is responsible for seven of the top ten games on Facebook and pays Facebook 30% of the revenue brought in through in-game transactions on the site. This means that a decline in revenue for Zynga is also a direct decline for Facebook.

However, at least one person disagrees with the bearish outlook. R.W. Baird analyst Colin Sebastian believes that the overall market for mobile games remains strong and users have just tired of the current crop.

My opinion is that Zynga may never regain the valuation brought by the initial public offering but, even if the casual and mobile gaming bubble has burst, the market will remain strong. The category has a wide appeal, from non-traditional gamers just wanting something to pass the time to the more hardcore set looking to relax in-between “real” games, and that will keep the genre relevant.

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