August 06, 2012, 11:10 AM — Sorry, Zynga shareholders, but you did it to yourselves.
There were warning flags aplenty about the social games maker's management, business model, slowing revenue growth and inflated valuation prior to the company's initial public offering. Enough investors with sound judgment heeded these warnings to make Zynga's December 2011 IPO a big flop, with shares finishing the first day of trading below the $10 offer price.
But in the weeks after, many investors though Zynga's dwindling share price represented some sort of "value" buy because it was trading below the offer price. So a lot of people jumped in at $8 or $9.
Even worse, other investors scooped up shares of Zynga (NASDAQ: ZNGA) when it soared (relatively speaking) above $15 in early March on -- prepare for tremendous stupidity here -- the news that Facebook was finally going public. Facebook.
A few months later, and Zynga was reporting atrocious earnings, with meager revenue growth and a nearly $23 million loss in the quarter ended June 30.
This led to the biggest day of trading since the IPO, with nearly 100 million shares trading hands and Zynga's stock price plummeting 37% to 3.18. Shares on Monday were trading at 2.75.
What's killing Zynga, and what eventually will kill Facebook, is 1) people eventually will tire of the trivial activities offered by each company -- seriously, how long can paying money to buy livestock for your FarmVille enterprise remain a thrill? -- and 2) neither company so far has been able to figure out how to monetize their growing ranks of mobile users.
And if this Wall Street Journal article is any indication, Zynga is a long way from solving the mobile revenue puzzle. Don't take my word for it; just read it. Does anyone see a glimmer of hope in there? The Zynga braintrust is grasping at straws regarding a mobile strategy.
Bottom line: I don't think the company will ever make mobile work for it, which basically means I think Zynga is doomed.