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Report: Zynga may delay IPO

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Many investors’ eyes have been fixed on social gaming company Zynga since the company filed for an initial public stock offering at the beginning of July, with expectations the move could bring as much as a billion dollars into the company. However, recent instability in the U.S. and global market has thrown a chill over many aspects of the investment community, and now the New York Post reports that Zynga is looking at pushing back its IPO a bit. Initially expected to land in September, the paper cites two sources “with knowledge of Zynga’s plans” that the company may delay its IPO until November.

The report also says the SEC is pushing Zynga for more information about its accounting practices as well as the number of paying customers it has for each of its gaming titles. In a filing with the SEC, Zynga has indicated that fewer than five percent of people who play its social games actually pay for virtual goods in the games.

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Zynga is a major publisher of online social games popular on Facebook and other sites, including Farmville, CityVille, and Empires & Allies.

Zynga’s IPO has been hotly anticipated for some months, but some industry watchers note it might make sense to delay an offering: few banks backing a major IPO want to launch it in a topsy-turvy stock market, and roughly a dozen major IPOs have already been delayed over concerns of market stability.

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Don Mattrick’s deal to take CEO role at Zynga worth a reported $50 million

Zynga reveals in a filing (spotted by with the U.S. Securities and Exchange Commission (SEC) that it signed a deal worth around $50 million to acquire soon-to-be-former Microsoft president of interactive business Don Mattrick as its new CEO. Mattrick receives $1 million in a flat annual salary, plus a one-time signing bonus of $5 million and another $40 million in stock options ($25 million vested over three years, $15 million over five). The highest bonus he can receive in his first year is $4 million (400-percent of his salary). And starting in 2014, Mattrick will be eligible for an additional $7 million in stock options, based on performance reviews.
Mattrick has had a fascinating career so far, and he's now ending his six-year stint overseeing the Xbox brand at Microsoft to become CEO of Zynga. The former Microsoft exec is expected to help turn things around at Zynga, which has had a rough year so far. In the meantime, Microsoft CEO Steve Ballmer has temporarily taken over some of Mattrick's duties, and rumor has it current Windows head Julie Larson-Green could be appointed to replace him.

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Zynga’s downward spiral continues as it shutters four more games

Here’s a plum fact about the video game industry: in 2010, Zynga was valued above Electronic Arts. So successful were the likes of FarmVille and Mafia Wars, so smitten with the ease of spending on the booming Facebook social network were players, that the little, privately owned game company was worth more (according to industry analysts) than the company making Madden NFL and FIFA Soccer. By the time Zynga made its initial public offering at the tail end of 2011, investors anticipated a worthwhile moneymaking opportunity. What's that they say about the stars that burn brightest? Zynga is shutting down a handful of once-successful social games after reporting yet another year of tepid earnings.
Revenue fell from $329 million during the first quarter of 2012 to just under $264 million in 2013, with net income of just above $4 million. For those not following the game maker's stumbles on the NASDAQ stock exchange, those numbers mean that Zynga beat expectations but by a hair, and investors are not happy. Shares plummeted 11-percent after the latest earnings call and haven't yet recovered. Zynga said that the coming year will be one of transition; the plan is to introduce new games to pick things back up, but the company's primary means of recovery right now seems to be closing down as many games as possible.
Zynga COO David Ko confirmed during Wednesday's earnings call that it was closing down four social games that were at one time pillars of the company’s business. These include Facebook titles The Ville, Empires & Allies, and Dream Zoo as well as the company’s foray into China, Zynga City, on the Tencent gaming platform. It also confirmed the cancellation of two unreleased games that were meant to be a big part of its future. CEO Mark Pincus said those games would have brought “better short-term performance” but they wouldn’t have provided long term stability.
The biggest cancellation is The Ville, the game around which allegations of plagiarism that have dogged the company coalesced. It was The Ville’s perceived similarity to Electronic Arts’ The Sims Social that finally led to the filing of a lawsuit that many saw as a long time coming. As Maxis boss Lucy Bradshaw wrote at the time, "This is a case of principle. Maxis isn’t the first studio to claim that Zynga copied its creative product. But we are the studio that has the financial and corporate resources to stand up and do something about it."
Ironically, neither The Ville nor The Sims Social will still be in operation come June, as Electronic Arts is bowing out of Facebook gaming. This doesn't mean that gamers have nowhere to turn on Mark Zuckerberg's social network, however. The market is simply proving that Zynga's approach to empire-building was flawed at the outset. These new cancellations are just the latest. Fourteen other Zynga games have been shut down since December 2012; eleven in that month alone and then three more in February.

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Casual gaming continues to prove lucrative for Farmville publisher
casual gaming continues to prove lucrative for farmville publisher zyngalogo

The company behind Facebook smash hit Farmville has made multiple fortunes by adhering to a well-defined business formula: Zynga takes hyper-simple game concepts, hones their risk/reward ratio to a shining razor's edge, slaps some simple aesthetics on the package and drops them into the unassuming, wildly lucrative world of Facebook or the cellular phone market and reels in buckets of cash from players enticed by each game's hypothetically free-to-play nature (which is, in fact, a smokescreen concealing that once hooked, players end up shelling out tons of cash for largely meaningless in-game accoutrements).
The aforementioned Farmville is the quintessential example of this. Here is a simple two-dimensional Facebook game that lifts the vast majority of its gameplay concepts from decade-plus old, proven classics like Harvest Moon and SimCity, yet since it's aimed at middle-aged women and kids too young to remember games from the Super Nintendo era this all seems shiny and new. While it is technically possible for a player to spend hours in Farmville totally gratis, the majority of users end up dropping real-world cash for new fence sections or biologically unlikely livestock, both because they want to create a unique homestead and because it's disturbingly easy to justify a 99-cent in-game purchase, even if it's the 50th time the player has done so.
Anecdotally, it seems like a depressingly lucrative business model, but you don't quite grasp the full scope of Zynga's success until you see the company's financial reports. This morning Zynga issued a press released covering its latest quarterly financials, and as one would expect, the firm is doing very well for itself.
According to Zynga, the company pulled in $329 million in bookings during the quarter. That's a solid chunk of change, but it's important to note that "bookings" include only the cash generated up front. That is, a single booking is the amount of money a player pays to purchase a game. Given that the majority of Zynga games operate on a free-to-play business model, it's bafflingly impressive that it was able to bring in $329 million from this alone.
Beyond those initial bookings, the company's games drew $321 million -- a substantial figure given that the majority of that was earned via sub-$1 in-game item purchases. This represents a 32-percent increase over the first quarter of last year.
The company reported $133.9 million in expenses (largely due to the firm buying back its own stock and acquiring Draw Something creator OMGPOP), though discounting this figure the company's shares increased by a mere 6 cents. This is a 38 percent decline from the previous year, which TechCrunch attributes to "Facebook’s 30 percent revenue share and infrastructure investment."
Most promising for those who own stock in Zynga is the increase in total monthly players the company has seen over the past year. The firm's titles now attract 292 million players every month; that's 182 million unique players and nearly enough repeat customers to populate Mexico. This is likely due to the burgeoning iOS and Android gaming markets, which are growing at an exponential rate as the cellular phone becomes increasingly ubiquitous amongst all walks of life. However, this news also means that growth among Zynga's Facebook titles (which were long the company's bread and butter) has begun to stagnate. Though Zynga titles currently account for 15 percent of all Facebook revenue, the company recently launched a new mobile gaming destination that it hopes will further bolster the growing mobile gaming sector.
"We think mobile is in the same place as where we saw the web in terms of business opportunities several years ago,” said Zynga CEO Mark Pincus. “We’re focused on getting the product right ... and getting to where we can repeatably produce successful games. We’re excited about monetization opportunities on mobile, but with the advertising experience, it’s still very early days."
If any of you "hardcore" gamers noticed that Mr. Pincus said a whole lot about fiscal results and absolutely nothing about game design or creative, novel ways to entertain his firm's fans, congratulations, your reading comprehension is still intact. Now please ask yourselves what exactly that might mean for the quality of games emblazoned with the Zynga logo.

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