Zynga Inc (NASDAQ:ZNGA) had a rough 2012. The company began the year fresh from its IPO and saw its stock rise to dizzying heights in the first quarter. Social media, and social gaming in particular, looked like an unbeatable prospect. The firm has lost almost 75% of its value this year. Where did it all go wrong, and what exactly can Zynga do now to resurrect its ailing business?
Here was the first major mistake Zynga Inc (NASDAQ:ZNGA) made in 2012. On March 21, Zynga purchased OMGPOP, maker of the incredibly popular Draw Something, for $180 million. Zynga stock jumped on rumors of the deal.Almost instantly people stopped playing OMGPOP's only hit, and the company became almost worthless.
This was undoubtedly the worst decision made by Zynga in 2012, and it sowed the seeds for everything that was to come. It showed the inherent instability of the social gaming market, and the swiftness with which players hop from game to game.
The Draw Something disaster was mirrored in the numbers from the new games it released throughout 2012. The most disappointing release was probably the company's follow up to its iconic hit Farmville. Farmville 2 was an almost inexcusable failure.
Zynga simply couldn't keep up with the trends in online gaming. Those trends are extraordinarily difficult to map, and in such a new industry it is almost anyone's guess where the market is headed. Zynga learned this lesson again and again this year.
Probably responsible for most of the loss in value at Zynga Inc (NASDAQ:ZNGA), the systematic overvaluation of tech stocks ended in May after the Facebook Inc (NASDAQ:FB) IPO. That disaster, one of the most prominent failures of the market since 2008, highlighted the unsteady basis of tech stocks.
Zynga Inc (NASDAQ:ZNGA), like most of its peers suffered. Between the Facebook Inc (NASDAQ:FB) IPO and today, the company has lost almost 70% of its value. Zynga made bad decisions in 2012, but none were quite as bad as the decision to value the company so highly at IPO, and in the first half of the year.
Move Away From Facebook
Here's the big one. In the aftermath of a terrible year, how could Zynga Inc (NASDAQ:ZNGA) possibly encourage the market to give it a second chance? The answer is of course a determination to get involved in that most profitable of businesses, gambling.
Zynga's first major hit game, Zynga Poker, is still one of its most popular. It's a simple game, almost everyone knows how to play it and it can be naturally monetized without changing the behavior of the users. Games like Farmville suffered from difficulty encouraging users to buy virtual goods, it simply didn't make sense to a lot of users. Gambling is almost universal.
Since announcing its intention to pursue real money gambling, Zynga has seen a recovery in its stock price. The company has ended its partnership with Facebook Inc (NASDAQ:FB), and is almost certain to begin real money operations next year.
If Zynga Inc (NASDAQ:ZNGA) is able to become the first among online poker providers, there is every reason for its stock to multiply in 2013. The company has an exciting year ahead of it. It will certainly be looking to leave 2012 behind.