Zynga Inc (NASDAQ:ZNGA) decided to abandon its plan to pursue a license for real-money gambling in the United States to focus its attention in a new strategy to revive its profitability under its new CEO Don Mattrick. The online social gaming company announced its decision during its earnings call for the second quarter.
David Ko explains Zynga’s trasition
David Ko, COO of Zynga Inc (NASDAQ:ZNGA) explained that the company is in a transition and it made a focused choice not to pursue real money gaming in the U.S. He said, “The decision we made centered around focus. As we looked at social free to play gaming opportunity, we’re not executing against that.” The company said it will continue to monitor the performance of its real money gaming business in the United Kingdom.
The announcement drove the stock price of Zynga Inc (NASDAQ:ZNGA) into decline by more than 14% to $2.99 per share on Thursday. Industry observers believe that the decline reflects that some investors were worried about the new strategy of the company.
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Many people in the online gaming industry believe that the real-money gambling business will serve as catalyst for Zynga’s future. IDC analyst Lewis Lard commented, “There’s no doubt that Zynga would like to leverage their very real advantage in casino-type games into this emerging opportunity of real-money gambling. The synergies are clearly there.”
Mattrick expresses confidence in Zynga’s revival
Mattrick is confident that Zynga Inc (NASDAQ:ZNGA) will be able to turn around and increase its profitability. However, he said that the revival of the company will not be easy and quick as the company needs to accomplish many things. He emphasized, “Zynga can do this.”
In addition, he said, “We’ve not met investors or our own expectations. We haven’t met our players’ expectations. We have what it takes to get back to winning. We need to get back to basics, longer-term view on our products, and tightening up execution. As we reset, we expect to see more volatility.”
Furthermore, Mattrick said, “It’s clear that the market opportunity around us is growing at an incredible clip. It’s also clear that today we are missing out on the platform growth that Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB) are seeing. In short, we can do better.”
Moreover, Mattrick said Zynga Inc (NASDAQ:ZNGA) needs some time, approximately 90 days to evaluate a forward plan for the company.
UBS Investment Research lowers estimates
Following the earnings results and the announcements of Zynga Inc (NASDAQ:ZNGA), analysts at UBS Investment Research revised their FY 2013 revenue and EBITDA estimates for the company. The analysts lowered their revenue estimate for the online social gaming company from $1.01 billion to $936 million. In terms of adjusted EBITDA, the company is expected to deliver $39 million versus their previous estimate at $100 million.
For fiscal 2014, the analysts expected that Zynga will be able to generate $837 million revenue and $169 million adjusted EBITDA. The research firm reiterated its Neutral rating for the stock of Zynga Inc (NASDAQ:ZNGA) with a price target of $3.30 per share.