Zynga Inc (ZNGA): How A Seven-Year Old Game Can Change Its Fortune

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Zynga Inc (NASDAQ:ZNGA) is still struggling to right the ship. The social gaming company has laid off workers, slashed operating expenses, changed management and closed more than a dozen of its games. Despite all these efforts, the stock has declined more than 13% this month after Zynga issued warnings about its fourth quarter results. The San Francisco-based company is scheduled to report its Q4 results on February 6 after the bell.

Replicating the success of Zynga Poker

Zynga Inc (NASDAQ:ZNGA) is facing stiff competition from King and Electronic Arts Inc. (NASDAQ:EA). But one of its seven-year old games can pave the way for its revival. And that’s Zynga Poker. As of Q3, 2013, it still accounts for 19% of the company’s total gaming revenue. In fact, Poker is the most financially rewarding game for the company after Farmville 2. Replicating the success of Poker would require Zynga to focus more on gambling games. This game still has about 10 million monthly active users (MAUs), similar to Farmville 2 and many other new releases.

While Poker has been a massive success, other gambling titles like Slingo and Mobile Slots have been shut down. It shows that not all gambling games are created equal. The reason behind Poker’s success is its unobtrusive design. Most free-to-play games generate money for their owners through in-game transactions and a bit of advertising. So, gaming companies have increasingly weaved the game designs around micro-transactions. The game progresses as players seek help of their friends or cough up the real world money for special privileges. Zynga Poker’s process of seeking a friend’s help and pushing through micro-transactions is much more natural and unobtrusive than other games like Farmville.

Zynga relies on in-game transactions

Zynga Inc (NASDAQ:ZNGA) depends heavily on in-game purchases. So, the average bookings per daily user (ABPU is an important parameter to assess the company’s health. The chart below (Courtesy Brandy Betz) shows that Zynga’s ABPU has improved despite a decline in the number of daily active users. It demonstrates that players are willing to shell out money for in-game transactions, but the current titles have been poor at user retention. Developing more games that can hold users’ attention on a long-term basis can improve the daily active users metric, which in turn would boost Zynga’s revenues.

Zynga Inc (NASDAQ:ZNGA) shares inched up 0.58% to $3.44 in early trading session Tuesday.

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