Is Zynga Doomed?

Posted by on October 27, 2011 at 6:21 pm

As sensational as the title may seen, it appears that social gaming magnate Zynga is about to tragically slam into a brick wall – or perhaps already has. We all recount the rise of Zynga, its controversial past, and how our moms needed to harvest their crops in Farmville before going to bed. But by their own numbers, it appears that they’ve hit a hard glass ceiling on the appeal of their titles and have nowhere to go but down.

If you’ve never played a Zynga game, like Cityville or Empires & Allies, it’s a bit like indentured servitude. In order to advance, you must do so in measured step and must enlist your friends to really get the best goodies. The problem is that people are picking these games up, but after the honeymoon, they get dropped quickly. On top of that, games like Mafia Wars 2 and Brian Reynolds’ Empires & Allies have faced even steeper fall offs and quicker taps on the ceiling, ensuring that Zynga’s influence never expands, as evidenced by Business Insider’s look at their subscription totals:

This looks bad for several reasons:

  • Zynga can’t seem to grow organically between games, seeking a new audience with each new title, then watching as they slowly drift away. This is an obvious limitation in their appeal.
  • The company is not far from an IPO, but who wants shares in a company that’s already found the limits of their business? Zynga will face dramatic challenges trying to find their next big thing before the first stockholder receives a certificate of ownership. Groupon, facing a similar issue, has even knocked down its evaluation by half.
  • Other major publishers (such as EA and Disney) have sunk hundreds of millions of dollars chasing this space and whatever happens at Zynga will trickle down to affect their performance as well. They have some time at their side, but will they use it effectively?
This is one stock that I’d hold off on. Until Zynga can figure the space out better and build games with more endearing appeal, their Ville-tastic future is out of energy points.

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