Drought Hits FarmVille: Zynga reports losses, lashes out at Facebook

It would appear that widespread drought isn’t just affecting the corn and soy farmers of the United States this summer. San Francisco-based developer Zynga—the face of the nascent social gaming industry thanks to the runaway success of games like FarmVille, CityVille, and Mafia Wars—has reported massive losses for the June quarter. Worse still, the company has lashed back at Facebook, the social network it shares a crucial symbiotic relationship with.

Shares in Zynga dropped more than 38% on Wednesday, crumpling to just above $3 per share after the company reported a net loss of nearly $23 million for the April to June quarter. Even as the company’s daily active user base increased year-on-year by 23 percent to 72 million and monthly active users great 34 percent to 306 million over the same period, the company still bled money. Revenues grew 19 percent, but Zynga’s rapid expansion still led to that critical net loss that shook shareholder confidence in the company.

What happened? A couple of things. First was the implosion of Draw Something. Few games exemplify the perilous nature of booming social and mobile games. Omgpop’s game boomed at the beginning of the year, racking up 50 million downloads by the end of the March, leading Zynga to buy up the studio and Draw Something for a cool $210 million. As soon as the check was signed, no one was interested in playing Draw Something anymore. Users abandoned the game, causing the advertising revenue generated by the game to shrivel and make it worthless to Zynga.

The other problem is Facebook itself. Facebook and Zynga need one another to survive and thrive as they have been in recent years. In fact, when Facebook revealed the details of its initial public offering, it revealed that 12 percent of its total revenue last year was generated by Zynga’s video games. Zynga meanwhile is blaming social network for its poor performance over the last quarter. “Facebook made a number of changes in the quarter,” John Schappert, chief operating officer at Zynga, told Eurogamer, “These changes favored new games. Our users did not remain as engaged and not come back as often.”

Schappert’s statements don’t jive with reported user growth though and industry analysts like Michael Pachter are mystified by the company’s performance. “Why did they do so badly? I wish I knew,” Pachter told the Christian Science Monitor.

Zynga will just have to do what every farmer is doing this summer: Pray for rain.

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