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01-23-12 Analyst: Zynga financials are a mess
11-22-11 Gamestop: our customers are broke
09-26-11 Zynga profits plummit... HARD!
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Analyst: Zynga financials are a mess
The social gaming business model doesn't seem to work all too well.
Zynga, the largest social gaming company in the world, has recently gone public but its stocks have been performing poorly ever since and it becomes clear now why.
Interactive entertainment analyst with Sterne Agee, Arvind Bhatia, received some of the financials behind the company and things don't look so great. In fact, the maths show a business model that just can't be kept up for very long. According to Bhatia's calculations, Zynga is losing $150 on every paying customer:
Zynga, the largest social gaming company in the world, has recently gone public but its stocks have been performing poorly ever since and it becomes clear now why.
Interactive entertainment analyst with Sterne Agee, Arvind Bhatia, received some of the financials behind the company and things don't look so great. In fact, the maths show a business model that just can't be kept up for very long. According to Bhatia's calculations, Zynga is losing $150 on every paying customer:
“They've given us the sales in marketing dollars for the first nine months – $120 million. Almost all of that is for acquiring customers. We also know that they had 3.4 million unique payers in the September quarter, which is up from 3 million at the end of December 2010. In other words, they added 400,000 additional payers and they spent $120 million to acquire them.”
“Now, what does that mean?” Bhatia continued. “Is it high? Is it low? It's high to begin with, but we know that generally they say that a person is staying with Zynga for about 12 to 15 months. We know that, on average, these people are spending about $150 or so. Our concern is [whether or not it's worth] spending $300 to get these customers when people are spending $150. That math won't work for very long.”
Bhatia figures that it isn't just Zynga that's facing issues, but social gaming as a whole. Interest has been decreasing and originality is starting to lack with boredom kicking in:“Now, what does that mean?” Bhatia continued. “Is it high? Is it low? It's high to begin with, but we know that generally they say that a person is staying with Zynga for about 12 to 15 months. We know that, on average, these people are spending about $150 or so. Our concern is [whether or not it's worth] spending $300 to get these customers when people are spending $150. That math won't work for very long.”
“When we say that traffic hasn't gone up despite new introductions, that's telling us that maybe people are moving from one game to another, but you're not really getting a lot of incremental people trying them,” Bhatia explained. “The really hardcore are, perhaps, finding themselves trying FarmVille, Castle World and CityVille. The newer audiences are trying and finding that this is all the same and leaving.
“Again, the fact that there is such a small base of people who actually pay says that your risk is tremendous. This is spread out over 20 million people. You could say, ‘Oh yeah, 5% could get bored.' Although, you only have 2% of your people paying, and God forbid if those guys get bored.”
Social gaming going downhill? Well, it seems so and although there will always be a market for this, I wouldn't be surprised if the extreme highs are over.“Again, the fact that there is such a small base of people who actually pay says that your risk is tremendous. This is spread out over 20 million people. You could say, ‘Oh yeah, 5% could get bored.' Although, you only have 2% of your people paying, and God forbid if those guys get bored.”
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