Zynga's Repositioning Could Get It Back in the Game

By Anthony Shields  DEC 17, 2012 3:40 PM

Can everybody's least favorite gaming company learn from its failures?


MINYANVILLE ORIGINAL Few companies have had a worse 2012 than Zynga (NASDAQ:ZNGA). Since its IPO, the company has lost a good deal of its management staff, its exclusivity deal with Facebook (NASDAQ:FB), and nearly $8 off its stock price, which is down to $2.46 per share. However, rather than admitting defeat, Zynga has decided to restructure and reposition its business strategies to go after profits in the smartphone, tablet, and gambling industries, which could help the company secure its long-term future. It’s possible that all these strikes against the developer could actually be helping it mature into a more stable company.
All things considered, the biggest issue with Zynga should be its inability to maintain its own high-level talent. In the past year, the company has lost multiple C-level officers and infamously fired 150 members of its staff all within a few months. Few of those officers offered an explanation for their departure beyond a lack of faith in the company and a desire to seek other opportunities.
The loss of talent is no doubt a bad thing, but at least these open positions should give the company opportunities to find new executives that specialize in the smartphone and gambling fields. In addition, the migration of workers seems to have stopped after Zynga announced its decision to venture into online gambling and offered an impressive buyback deal to inspire faith in the company among investors and remaining employees. The company’s employee numbers are still being thinned out, as seen by Zynga’s decision to not renew the contracts of its moderators, but this cost-cutting measure may have been inevitable since many of the developer’s games have been discontinued on Facebook.
While Zynga’s decline and apparent desertion of Facebook’s gaming hemisphere seem to be major losses, it should be noted that the company’s dependence on Facebook was originally cited as a major reason the stock was weak. In addition, Facebook’s changes to the way it markets its games and notifies players, and the rise of smaller developers on the website, have made it harder for Zynga to generate profits. As such, it only seems natural that Zynga would want to decrease its presence on the site, so as to better focus its resources where consumers are going, to smartphones and tablets. The break-up also allows Zynga to spread its services to other sites such as Google + (NASDAQ:GOOG), which is supposedly gaining traction as a rival to Facebook.
Everyone from Wedbush Securities’ Michael Pachter to the gang from Seeking Alpha sees Zynga’s shift to mobile as a great decision for obvious reasons. With the death of the PC industry on the horizon, gaming from tablets and smart phones are going to be becoming more common, creating an expected increase in that industry. Of course, Zynga’s Android and iPhone (NASDAQ:AAPL) apps Words With Friends and Draw Something have proven that the company can succeed in this industry. However, what is most impressive is that Zynga Poker has recently been announced as the top grossing iPhone app in the UK this year, perhaps proving that the company will be able to deliver on its gambling services.
In the end, it seems like Zynga might be on the verge of finally figuring itself out. While the company has not had a good year, by any stretch of the imagination, it seems to be reacting well to the challenges it faces and making good decisions for its future. It’s likely that the company will continue to get a lot of flak from the conventional gaming community for the lack of originality in its content, and certain analysts are sure to point to its previous failures as a sign of impending doom, but it’s possible that in 2013 this underdog could be making a comeback.  
No positions in stocks mentioned.