Mark Pincus will finally step down from his CEO position at Zynga (ZNGA) for the best interest of the company. Don Mattrick, the man behind Microsoft's (MSFT) Xbox success, will take over the top seat. However, Pincus will remain in charge of the company, being the chairman of the board and at the same time the Chief Product Officer.
Mark Pincus steered Zynga towards the peak of its success three years ago. However, he failed to maintain the top position that Zynga once enjoyed. Competitors started eating up a significant portion of the pie, and one competitor finally succeeded in dislodging Zynga from the top.
Zynga's success was mainly fueled by the famous game, Farmville, which was dubbed as the number one Facebook (NASDAQ:FB) game worldwide. Today, Farmville lost traction with the entry of newer and more exciting games that are now available not just on Facebook but also as downloadable app in the Android market.
Is Farmville dead?
Absolutely no, Farmville is not dead. In fact, it is still among the most widely played Facebook games today. While it used to be at the top spot during its heyday, Farmville is now the second most played game, with about 8 million daily active users. The reigning king of games is now the Candy Crush Saga of King.com, with an average of 10 million users daily.
Company-wide, Zynga also ranked second at 52 million average daily active users. King.com is now the reigning king with 62 million daily active users. However, this is a far cry from what Zynga attained at the peak of Farmville, having about 82 million daily users.
Major highlights of the first quarter results
Based on its latest report covering Q1 2013, Zynga's daily active users was sequentially down 8% from 56 million in Q4 2012 to 52 million. It was also down 21% year-over-year from 65 million.
The data for the monthly active users was not quite impressive, as well. It was down 13% year-over-year from 292 million in Q4 2012 to only 253 million in Q1 2013. This was also sequentially down 15% from 298 million monthly active users.
One of the reasons for the remarkable decline in monthly and daily average users is the weakening numbers of unique users. The monthly unique users dropped to only 150 million in Q1 2013, down 18% compared to the 182 million during the year-ago quarter; sequentially, the number of unique monthly users also declined by 10%.
Therefore, Zynga did not only fail to convince the existing users to keep on playing the games, but it also failed to get more unique users compared to the previous year's performances. Zynga today has about 34 different games under 4 major categories. Despite having more games today compared to the past, the monthly and daily users are declining.
As of March 2013, Farmville 2 remains one of the top 10 Facebook games, along with two other Zynga games, which are the Zynga Poker and the Words with Friends. In the app market, Candy Crush maintained its market leadership position at the no. 1 spot. Farmville 2 is ranked no. 8. Two other games of King.com made it to the top 10 list and above the rank of Farmville 2; they are the Farm Heroes Saga at no. 4, and the Pet Rescue Saga at no. 7.
The significant decline in the average users of Zynga also reflects in its financials. The company reported revenue for the first quarter 2013 at $263 million, down 18% year-over-year and 15% sequentially.
But the good news is the company made a turnaround in earnings from net loss of $86.8 million during the first quarter of 2012 to net earnings of $4.1 million in Q1 2013. This was achieved by reducing its stock-based expenses from $133.9 million to $29.9 million.
However, a major concern is the low EBITDA for the first quarter 2013 at $28.7 million. It is down from $86.8 million during the year-ago quarter and from $45 million during the previous quarter.
Past Challenges of Zynga
After Zynga so much enjoyed the nice ride up fueled by Farmville's success, the ride downhill was a rather tough one. Due to declining revenues and losses, Zynga laid off more than 100 employees, approximately 18% of the total workforce. It also closed down its Japanese arm after two years in operation.
After reporting the second quarter losses in 2012, it faced 2 lawsuits from its shareholders for failure to warn them ahead of the earnings report about the declining revenue. It also faced several lawsuits for copyright infringement; one of them from Electronic Arts (NASDAQ:EA), alleging that Zynga's 'The Ville' is a copycat of EA's 'The Sims Social.'
By the end of the fiscal year 2012, it shut down 11 Zynga games; some of them were quite popular like Petville, Mafia Wars 2, Treasure Isle, Vampire Wars, and Fish Ville. This enraged millions of users; some were upset by the complete loss of their virtual pets in Petville and Fishville.
Will Don Mattrick revive Zynga?
With so many bumps along the road to recovery, the incoming CEO is in for a tough ride ahead. However, this is nothing new to Don Mattrick, who is well known for being a game maker and a game changer.
The main question right now is whether Don Mattrick can revive the foundering company. There is no doubt about the skills and visions of Don Mattrick. After all, he was the man behind the success of Xbox. He made Xbox not only profitable but a top-selling gaming console, as well.
He also discovered the motion-control technology of Kinect, which became the fastest selling consumer electronic gadgets of all time. He was the man behind several unique features of the upcoming Xbox One.
Mattrick expanded the installations of Xbox 360 from 10 million to 80 million. He also swelled the Xbox Live memberships from roughly 5 million to 50 million. Prior to his stint in Microsoft, Mattrick used to work with EA games, and he was the force behind the success of The Sims.
The past achievements of Mattrick are compelling enough for investors to trust Don as the right person to revive Zynga. With him on board at the helm of the firm, Zynga should change gear from downhill ride to upward trend in the days ahead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.