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Why Zynga Stock Plunged Today

By Joe Tenebruso – Aug 6, 2021 at 4:21PM

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People are playing games less often as the economy reopens.

What happened

Shares of Zynga (ZNGA) plummeted on Friday after the video game developer warned investors that its growth was slowing. As of 3:40 p.m. EDT, Zynga's stock price was down 18%.

So what

The owner of games such as Words With Friends and Tangle Master 3D saw its revenue rise 59% year over year to $720 million in the second quarter. The gains were fueled in part by a 110% surge in advertising revenue, to $133 million. 

Zynga's acquisition of hyper-casual game publisher Rollic in October has helped it ramp up its in-game ad business. The company said Rollic recently surpassed 1 billion game downloads. "We are blown away by Rollic's performance so far this year," Zynga president of publishing Bernard Kim said in a press release. 

A finger is pointing to a stock chart that rises sharply and then falls.

Zynga's shares fell sharply on Friday. Image source: Getty Images.

However, Zynga noted that by the end of the quarter, economic reopenings and reduced social distancing measures began to negatively impact its player engagement levels and gaming revenue. "As the COVID restrictions started to lift, we saw people starting to play less," CEO Frank Gibeau said during a conference call with analysts. 

These trends prompted Zynga to cut its full-year forecast for bookings -- a key sales metric that accounts for changes in deferred revenue -- by 3% to $2.8 billion.

Now what

Investors have grown accustomed to strong bookings and revenue growth for gaming companies during the pandemic. But as vaccinations rise and people spend more time outside their homes, the gaming industry's growth is slowing. Investors are now resetting their expectations for Zynga and other game publishers, which is driving their stock prices lower.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zynga. The Motley Fool has a disclosure policy.

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