Zynga Just Made A Choice That Could Save (Or Destroy) Its Business

One of Zynga’s brightest hopes, real-money gambling in the U.S., was purposefully extinguished. But focus might be just what Zynga needs right now.

GlobeNewswire / AP

Zynga basically gave up all its gains from earlier today in after-hours trading, owed largely to the fact that it has decided to abandoned plans for real-money gambling in the U.S.

The earnings by themselves are relatively what you would expect: major losses in total number of players, though revenue and earnings were about in-line with expectations. But investors sent Zynga shares down more than 14% in extended trading — taking back all the goodwill that accrued to the company from Facebook’s strong earnings report yesterday — on its decision to give up its pursuit of real-money gambling domestically, which many considered to be a kind of business that could “save” Zynga.

But the decision to hire former Microsoft and Xbox exec Don Mattrick as the new CEO and abandon real-money gaming go hand-in-hand. Zynga is making a conscious decision to be a gaming company that is subject to the same demands of other gaming companies such as Activision and Electronic Arts: make good games that people want to play.

Further, at best the prospect of real-money gaming in the U.S. was shaky. Despite the upside, regulations and procedures still aren’t set in stone and there was still no definitive timeline for it to actually become a reality in the U.S.

The hiring of Mattrick comes at a time when Zynga finds itself unable to rely on the traditional viral channels that propelled it to one of the largest tech IPOs since Google. Since going public at $10, however, Zynga has fallen quite significantly to the point that it’s trading around $3 today.

Zynga reported a loss of about one cent per share, slightly better than expected by analysts, on revenue of $230 million — which was better than analysts expected. It’s in the middle of a massive restructuring where it laid off more than 500 employees, and it’s also sitting on a pile of more than $1 billion in cash.

Focus might be just what Zynga needs. The biggest question since the restructuring was, and still remains today: will former CEO and founder Mark Pincus be able to let Mattrick run the show and turn his company into a real gaming company.

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