Zynga's OMGPOP Deal Sours

by Erik Sass, Oct 5, 2012, 1:42 PM

• Comment
• Recommend
• Tweet
• 

Of all the new businesses that have emerged in conjunction with social media, casual gaming is potentially one of the most profitable -- but clearly also one of the most volatile, as demonstrated by Zynga’s ill-fated acquisition of OMGPOP, publisher of “Draw Something,” in March of this year.

Zynga paid $183 million for OMGPOP, in a deal that appeared to make sense at the time, given the popularity of Draw Something -- but in the casual game universe such popularity can prove all-too-fleeting. Since then shifting consumer whims have erased much of Draw Something’s popularity, forcing Zynga to issue preliminary financial results this week in which the company revealed it will write down some $85 million-$95 million of OMGPOP’s value, or half the original purchase price.

In its latest update Zynga forecasts 2012 revenues of $1.1. billion, down 10.6% from earlier forecasts of up to $1.23 billion. The company’s share price fell from about $2.82 yesterday evening to $2.31 at the time of writing, a roughly 18% decline; that price represents a 77% decline from its IPO price of $10.

Faced with a volatile consumer marketplace for casual games, Zynga is trying to shore up its bottom line by keeping a larger proportion of the revenues from virtual goods sales. The company has long hinted that it would like to lessen its dependence on Facebook, which takes a 30% cut of revenues generated through sales of virtual goods to casual gamers. In June the company unveiled “Zynga With Friends,” a standalone social network where players can build profiles and connect with other players.

• Comment
• Recommend
• Tweet
• 

Be the first to comment on "Zynga's OMGPOP Deal Sours"

Leave a Comment