Too many cooks in the kitchen
Pincus sent his letter last week on Thursday and gave employees such reassuring generalities like "the world is playing games and is increasingly choosing social games," and a promise that the company is "addressing these near-term challenges by targeted cost reductions." He also highlights the number of users playing ChefVille, a game released at the beginning of August. The day the letter was sent, the number stood at 45 million monthly active users, or MAUs. Today, less than a week later, the game is already down to 40 million MAUs, according to AppData. And both numbers are down from a high of 58.5 million MAUs in late September. The game loses an average of 2.4% of its MAUs every day. At that rate, the game will have only 5 million MAUs by the end of the year:
Sure, extrapolating out this rate of decline may be too pessimistic, but previous Zynga games have had such decline in user bases. Take Draw Something, once entertaining 15 million daily active users, or DAUs, when it was acquired in March, and now hosting only 2 million DAUs. Or Bubble Safari, released in May, which once had 7.4 million DAUs in June and now has only half that number, at 3.7 million DAUs. Zynga games have an incredibly short half-life, which is one of the key issues for its sustainability as a business.
The other poor numbers
Financially, Zynga drastically cut back its full-year estimate for EBITDA from a range of $180 million to $250 million down to a range of $147 million to $162 million. The company said, "The change in outlook is primarily due to reduced expectations for certain Web games including The Ville and delays in launching several new games." The Ville is another example of a product in need of users, as it's dropped from a high of about 37 million MAUs in early September to 22 million MAUs today.
Zynga made up 19% of Facebook's
No extra lives
Zynga still has plenty of cash, so bankruptcy is probably far off, but as the market value of the company dipped below its book value, plenty speculated on any number of companies acquiring Zynga. And really, since so many top managers recently left the company, it might be easier for a new parent company to fill top roles without much pushback.
Some have mentioned Amazon.com
Some even look at Apple's cash and think Zynga could give it its own in-house game developer. However, this would be a strange strategic change for Apple, as it typically has stuck with acquiring hardware manufacturers and software companies like Chomp that improve content delivery, rather than the content itself. Additionally, Apple's corporate culture of delivering original quality products seems to be the antithesis to Zynga's high-volume, imitation-is-the-best-form-of-flattery games.
A game where the only move is not to play
Zynga's plan of constantly releasing games to maintain users as the users lose interest in previously released titles is like seeing Lucille Ball trying to keep up with candy on a conveyer belt. The whole process eventually falls apart.
Fool contributor Dan Newman sticks to TurboGrafx. He holds no shares of any of the above companies. Follow him on Twitter, @TMFHelloNewman.
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