Zynga bets on mobile and gambling games

Posted at 10/25/2012 5:01 PM

SAN FRANCISCO - Zynga's beleaguered stock was boosted on Wednesday by an earnings report that beat expectations and an opening ante into real-money casino games in Britain.

Zynga reported it lost $52.725 million on revenue of $316.637 in the quarter that ended on September 30 but was so confident in its future that it planned to repurchase $200 million worth of its shares.

The San Francisco-based social games pioneer also announced a partnership with real-money gaming (RMG) operator Bwin.party to run poker, roulette, blackjack and other virtual casino games in Britain.

"Partnering with an established leader like Bwin.party is a strategic and prudent way for us to enter a key RMG market while giving local players the real money games they've been asking us for," said Zynga executive vice president Barry Cottle.

Players of Zynga poker in Britain will be able to take part in the Bwin.party regulated game network, according to Zynga. The partners expected to have a suite of 180 Casino games in Britain by the middle of next year.

"Zynga is the world's leader in social games with hundreds of millions of active players worldwide and a significant player base in the UK," Bwin.party co-chiefs Jim Ryan and Norbert Teufelberger said in a release.

"We are delighted to have been selected as their chosen partner for this important step in their evolution, and hope to expand our relationship into other products and markets."

Zynga shares rose more than 13 percent to $2.42 in after-market trading.

Revenue for the first nine months of this year was up 17 percent to $970 million compared to the same period in 2011, according to Zynga.

The number of people playing Zynga games each month climbed to 311 million in a 37 percent increase from the same quarter a year earlier, Zynga reported.

"While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming," said company chief executive and co-founder Mark Pincus.

"It's more clear than ever that along with search, shop and share, play is a fundamental pillar of the Internet."

Pincus stressed that Zynga was implementing "a number of steps to drive long-term growth and profitability."

On Tuesday, Zynga began trimming workers, shuttering studios and shelving older titles to get in financial shape for the long term.

Zynga will be "parting ways" with five percent of its approximately 3,300 full-time workers and dump 13 games, along with significantly cutting its investment in "The Ville" franchise, according to Pincus.

The company will close its studio in Boston and trim its team in the Texas city of Austin. Zynga is also proposing to close studios in Japan and Britain.

"We don't take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us," Pincus said in an internal memo, a copy of which was provided by Zynga to AFP.

"This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors."

The cost-cutting moves are intended to let Zynga focus on more promising games and ramp up its network on the Web and on mobile devices.

Zynga shares plunged early this month after the company behind social games such as "FarmVille" cut its earnings forecast for the year.

The company cited the shifting loyalties of players along with delays in releasing new titles as among the causes for reducing its revenue expectations.

"We found it more challenging to keep players," Pincus said during an earnings conference call. "We weren't able to bring new games to market fast enough to offset this decline."

Zynga rose to stardom by tailoring games for play by friends on Facebook and went on to create its own online playground at zynga.com.

The booming popularity of playing games on smartphones or tablet computers took a toll on Zynga's online social network offerings, prompting the company to make shifting to mobile a top priority, according to Pincus.

"Mobile is the next major growth opportunity for Zynga," he said, noting that all the company's game teams have been reconfigured to craft titles for both mobile gadgets and the Web.

Zynga also planned to begin testing a "With Friends" mobile game network in the coming week.

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