Zynga's Profits Down by 95% | Hacker News Reader

Zynga's Profits Down by 95%

gamepro.com

306 pointsbane106 comments

Good. Suck it. This company is pure slime. I pity their acquirees. And it's totally worth my karma hit to just get this off my chest.

Can you expand on why you feel that way?

Probably something similar to what's described here: http://bit.ly/qAb7nM

Perhaps they've changed their tune, but early on Zynga had a questionable ethical reputation

Shortened URL = http://www.sfweekly.com/2010-09-08/news/farmvillains/

Try not to do so (HN rules and all that)

Since their revenue was up, this doesn't mean much without knowing more about "higher than normal spend on hiring, acquisitions and international growth."

Well their daily active users were down despite hiring and acquisitions. Pre-IPO, I would say that a declining user-base is not a selling point for a social company.

Could this just be a gap in between new games? Zynga games do seem to be sticky and addictive but there is going to be a lot of attrition the longer a game is around.

Yes, I imagine that could definitely have something to do with it. I also think part of it is that others (Sims Social) have shown they can build sticky and addictive games as well and Zynga is no longer the sole owner of the space.

Most of Zynga's games differ only very superficially though. It's weird that they can't launch games fast enough to stave off attrition.

Let's be clear, active users were down only 4%.

If they were already public, this would likely cause a huge drop in the stock price. Similar to what happened to Netflix when they guided down on number of subscribers.

Netflix had bad publicity surrounding price increases.

Did Zynga do anything to cause the user base to decline?

When you've sold yourself as a growth story, the reasons for the decline don't matter to Wall Street. Sell side analysts build complex earnings projections models based on estimated compounding growth rates. Even a slight reduction in the growth rate has a large impact on projected earnings a few years out and a negative growth rate blows up the entire model.

Did Zynga do anything to cause the user base to decline?

You mean, other than being evil incarnate?

Yeah, if anything it says they are confident enough in their business to reinvest nearly all of their revenue and not just go for a quick win.

Disclaimer: I was previously a Zynga employee and I am presently a holder of Zynga stock. I have no knowledge of Zynga's current internal state - the following is entirely speculation.

=================================

There are many forces at work here that need to be brought to light.

* Macro Trend #1 - Facebook's web traffic is in decline[1]. These users are shifting to mobile as their primary consumption channel for Facebook. No facebook app developer has presence on the mobile app.

* Macro Trend #2 - Zynga's game launches are smaller than ever. For many reasons, it's getting harder to launch a 5M+ DAU game.

Zynga is responding to these trends in several ways.

* Leverage their warchest[2] to make acquisitions. This lets them launch a higher volume of games and help them get a foothold in mobile. Zynga has made a LOT of acquisitions this year[3].

* Further monetize their existing base. They've been pushing partner deals really hard recently, doing deals with Lady Gaga[4], Amex[5], and Capital One[6]

Zynga's games are more high quality than ever. Gone are the days of "fuck innovation", two of Zynga's most recent releases are the best they've ever built. The issue is that the market for FB games is in decline - the next big wave is mobile. If Zynga can become a player by launching a hit or acquiring a large chunk of the space, they'll be doing better than ever. But so far, Zynga's mobile releases have flopped.

TL;DR - Zynga's profits are a sign that they have doubled down on acquisitions to counter-balance a market shift from web to mobile. Their future prospects lie in their ability to generate hits on the iPhone.

=====

[1] - http://www.insidefacebook.com/2011/06/12/facebook-sees-big-t...

[2] - http://www.insidemobileapps.com/2011/08/11/zynga-credit-1-bi...

[3] - http://mashable.com/2011/05/18/zynga-dna-games/

[4] - http://mashable.com/2011/05/10/zynga-gaga-gagaville/

[5] - http://www.zynga.com/about/article.php?a=20101130

[6] - http://blog.games.com/2011/09/19/farmville-cityville-pioneer...

>TL;DR - Zynga's profits are a sign that they have doubled down on acquisitions to counter-balance a market shift from web to mobile.

That is not the right summary. Aquisitions are not expenses. They are spent from the 'capital/capital reserves'. So the act of acquiring doesn't hurt the company's profitability directly. However if all the acquired companies are making losses, those losses will now become zynga's losses. So right now the cost of running zynga is huge and that is not too good a thing as compared to its revenues

You forgot to mention that Zynga is one of the major reasons why Facebook is starting to decline in the U.S. People hate Farmville and Mafia Wars and the associated spam.

That said, Words With Friends is an excellent implementation of Scrabble and it's actually social, not alienating like that Farmville garbage. It's quite well-polished. I respect the attention to detail.

You forgot to mention that Zynga/FarmVille was also one of the reasons Facebook picked up (and kept) so many users so fast.

It's digital crack manufactured by Zynga's bench of psychologists, but it brought in the users.

The original Words With Friends app was, of course, developed before Newtoy were acquired by Zynga. Fortunately, the social DNA (and polish) of the game has remained intact.

Why down vote this? While the spam from these games was turned off for non-subscribers, I heard Tim Train from Zynga say at a presentation that they are still experiencing the backlash from the legacy of spam.

Why would non-Farmville-playing users leave Facebook because they are tired of it's spam when they could just hide posts from it?

Consider the majority market of Facebook users, many don't know how to "hide posts" and will often be turned off whent their facebook wall begins to look like their hotmail account.

Don't always assume the average user has the know-how you do and don't always assume they're interested in solving the problem either.

And even if you know how it seems like every time I log into facebook (admittedly rarely) there's a handful of new spam games making the rounds. It's a little frustrating that there's no blanket option of block all of the stupid game spam, or switch from a blacklist to a whitelist. I'd much rather un-block specific games than have to block every game ever made.

Probably time to block a few of your friends.

It's still a sign of the decreasing signal-to-noise ratio. I could get a Tivo and fast-forward through commercials on TV, too, but it's not worth it.

That should be false. Games bring back millions of users to facebook. Remember that while facebook attempted to hide games some time ago, they reintroduced viral features like a scrolling side ticker to spark up the traffic. Why would they do that if they would not benefit from it?

Wow, I actually hate Words with Friends — its ugly design, its noises, its super-slimy full-screen no-close-button ads, the way some games end in stalemate that the system does not recognize, etc.

I agree with all of these strongly. I wouldn't say Zynga is a complete failure in mobile though, Zynga Poker has consistently been a top grossing app on iPhone. I do agree that in order to continue to grow Zynga needs to be far more successful in mobile, and perhaps enter other markets (console, set top box, etc.)

If i might interject:

1) Facebook traffic is not falling. The reports are contradictory enough that we cannot conclude that : http://www.insidefacebook.com/2011/06/13/available-data-show...

2) I think Cityville was their fastest growing game: http://venturebeat.com/2010/12/15/fastest-growing-game-in-hi...

Also I fail to see how mobile is the next big wave. There's only a small percentage of users who play social games on mobile (but they do on the iPad, for non-flash games at least).

Facebook traffic isn't in decline.

16% of all US online time is spent on Facebook. That's up from 11% 1 year ago and 14% a quarter ago.

http://allthingsd.com/20110926/the-facebook-chart-that-freak...

I suspect the metric used in reports like http://www.insidefacebook.com/2011/06/13/available-data-show... rely too much on page loads. Facebook's increasing use of Ajax breaks a lot of 3rd party measurement metrics.

You should have kept reading to the next sentence. teej said that web traffic is declining as users shift to mobile use of Facebook.

The OP stated web traffic was declining, not overall traffic.

Macro trend #1 should change once Facebook rolls out the mobile gaming strategy

It is my opinion:

Zynga is thought pollution.

Will Google+ of any help?

Off topic, but i am really disappointed that google chooses to open their APIs to specific companies only instead of making it open to anyone.

There's something to be said for beta testing in a way that's less likely to take the entire site down due to unexpected behaviour under load.

Most of all - ZERO INNOVATION!

I think that we can stop this debate about whether innovation will necessarily lead to success (financially) or not. I might have one case to against you. One case in Asia: the biggest online gaming company in Vietnam (and also in South-East Asia) called VNG bought license of one game from the Chinese Kingsoft, rebranded it, customized the UI, distributed in Vietnam and now they have $60M in revenue. The key success factor is that the market is so ripe and so ready for online gaming, and the game VNG sells in VN just "works" for those customers, they keep paying for the company for the virtual goods and monthly subscription. nobody cares the originality of the game.

Which holds true with my personal definition of innovation: find opportunities and/or challenges then apply solution. Great example of this!

(Not necessarily find some crazy new solution to a problem -- that's called research)

Sorry guys, making money != innovation. Was Madoff an innovator?

The innovation doesn't need to occur in product development. The business model, distribution, or any other aspect are also open to new techniques, even when the product is decidedly un-innovative.

Yes, making money is not innovation. Innovative things are usually financially successful, however.

This is no longer the case. In terms of game design, Zynga is now leading the way on many fronts.

You could make a case that this is entirely due to the fact that they ran out of companies to copy, but that's beside the point. Nowadays, it's just inaccurate to claim that Zynga doesn't innovate.

If I remember correctly from a few weeks ago, Zynga revenues increased and most of their spending remained flat, but they've increased spend on R&D dramatically hence why they are showing lower profit figures. This is a smart move, in my opinion. You can lead a market by being good at capturing it early on, even if you simply just copy other people's ideas, but to remain there or go beyond that requires innovation especially as competition increases or the nature of the market changes.

No matter how you see it, for a billion dollar company, Zynga adds nothing to the technological stack. Frankly, can you give examples where they innovate? You mention game design, but I remember playfish making beautiful designs years ago.

http://blog.games.com/2010/09/08/zynga-ceo-to-employees-i-do...

he said "Nowadays" - your link is 1+ year old.

So he suddenly changes from "no innovation" to "actually, it's needed?". Their games are nothing more than spam. Really! One of the reason I quit facebook was friends playing them, and letting me know about their status.

I'm a gamer. I work at game development studio, and I spam my buddies that play the same game as me with my status, but no one else...

Facebook's web traffic is NOT in decline.

He posted a link, you just threw out a sentence. Care to back up your claim?

Of course a big part of this is Zynga bet huge on Flash (for no particularly good reason). If Zynga had bet on HTML5 it's stuff would all be working on iPhone for free.

Far be it from me to be someone who defends Zynga on anything, but your post is pretty ridiculous.

HTML5 is a pretty iffy target platform for games today. It is very difficult to support all the different browsers across desktop and mobile well and still have fast audio and even just simple 2D graphics. That's today.. in 2007 (when Zynga was started) HTML5 basically didn't exist as anything other than a pipe dream. If Zynga had "bet on HTML5" back in 2007 they would have been a stillborn company that never made any profit to begin with. For the types of games they make, Flash was inarguably the only option then and even today on desktop browsers it is arguably still the only reasonable option.

Yes, HTML5 will be great for games, maybe in 2014 or so. I'm sure they have people there working with HTML5 and getting ready for that.

I can't speak as a big Zynga user (indeed, I don't play their games at all) but my wife is a total addict. Zynga's games, as far as I can tell, and certainly the older games, don't make much use of capabilities that Flash offers over plain old HTML4 + JavaScript. So, in essence they picked Flash because it _might_ have let them make interesting games with what was at the time a ubiquitous engine, but in fact they made rather uninteresting games that could have been done without it, and this has cost them dearly.

Zynga used Flash for the same reason everyone else uses Flash -- ubiquity and consistency. HTML 5 canvas/JS would require divergent codepaths for each browser since they all implement different subsections of the spec (occasionally in different ways) and would still probably require a Flash fallback for IE users (most of Zynga's target audience).

It would be nice to get automatic compatibility with anything that runs a modern web browser, but the sad reality is that most PCs don't use a modern web browser, and HTML 5 doesn't really simplify anything. Flash runs the same everywhere from only one codebase.

I'm a big supporter of HTML5 and I strongly dislike Flash, by that's ludicrous. You can't just put a game designed for desktop/laptop screen sizes and for the mouse/keyboard and expect it to work as-is on the iPhone. The game may load, but it won't be playable. You need to do a version for that type of UI. HTML5 would enable reuse of the backend, but not much more.

Zynga bought Dextrose who where developing a HTML5 based game engine, back in 2010. Nothing that I know of has come out of that acquisition yet.

http://techcrunch.com/2010/09/24/zynga-continues-internation...

no i think zynga cityville runs on dextrose game engine

I'm not a fan of their games, but I do want them to do well....not sure why. Maybe it's because I feel that out of all the latest IPO's and IPO rumors, they have the closest to an actual business, or because I want a gaming company to do well since I make games.

Either way, 95% is a lot, and this doesn't bode well at all for anyone lower in the food chain.

From what I've read, it's my impression that their games aren't actually fun and they get pretty much all their popularity through manipulative social incentives to play. I want that model to lose.

More generally, I'm not thrilled by things that try to monetize my relationships with friends and family, which includes, to a degree Facebook itself.

Have you played a Zynga game? In Zynga games, you cannot complete the core objectives without recruiting other people to play the game or by paying money. Zynga's products are pyramid schemes masquerading as games.

It's actually become quite rare for them to gate core objectives in this manner (I haven't seen it in a new game in at least a year, and I've spent a lot of time researching their games).

The general rule: if you have the patience to wait for your energy to recharge, you can play for free (and without neighbors) for quite a while (weeks or months). You might miss out on some fancy extras, but even still, it's not bad in terms of length and depth, when compared to the 'free trial' phase of so-called "hardcore" games.

I don't doubt that, but they seem to make people happy judging from my FB feed. I think they found a way to make non-gamers feel good about gaming, which I'm for. Maybe Zynga can be a gateway drug?

Why do you want non-gamers to "feel good about gaming"? Why do you care? Why is this kind of thinking so prevalent among the gaming community? You don't see golf enthusiasts concerning themselves with the general population's interest in golf. You don't see golfers applauding courses opened up with the sole purpose of getting everyone on the planet to golf (in fact it's often the opposite).

Not everyone has to play video games or want to.

I'm thinking the difference is that golf isn't widely misunderstood to be an activity only engaged in by lonely male teenage misanthropes.

Regardless, many people do try to promote activities or groups that they are involved with. Golfers who want to keep their courses uncrowded is a poor example; generally games get better as more people play.

Because traditionally, the people I know playing Zynga games have felt embarrassed to admit they play games, which is silly.

Perhaps I've given the impression that I'm deeply passionate about Zynga becoming a success and for the world to unite under a flag of better gaming, but that's not what I'm after. I want to eliminate the stigmas of gaming, and as another poster said, expand the market.

That said, I'm bewildered by the anti-Zynga crowd here. No one forces people to play Farmville, and though I really hate the game, I'm not going to blame Zynga for people wasting their life away, just as I don't blame Blizzard for the people hooked on WoW. It's a choice people make.

    Why do you want non-gamers to "feel good about 
    gaming"? Why do you care?

I don't know about the OP, but as a game developer I want my potential market to be as large as possible.

More gamers == more demand for games.

Let the man care about what he cares about. If he wants more gamers, that's his right. Unless he's actually impacting your life, live and let live.

What the hell kind of comment is this? It's a discussion forum, we're discussing.

I care more about gaming than I probably should, and I'd welcome a larger community as well, but not if it means gaming comes to resemble the lowest-common-denominator shit we get from Zynga, et al.

As an avid gamer of more than 2 decades (I'm 28 & started playing games on my parents' PC XT when I was 4) I don't think this is the trend we're seeing, if anything things keep getting better all the time - you got more choice & more games of more types coming out all the time.

If you want "hardcore" games, there is no shortage of new ones coming out.

Well, to paraphrase your own comment above, golfers don't care that there are many other shit golf courses being created around the world. They just play golf on courses they like. Why do you care if others are playing shit made from Zynga? You have a lot of opinions about others comment styles, what they care about etc, but frankly economics doesn't care whether you like games or not. If there's a market, it sells.

I suspect golfers would start to care if mass-market trends impacted the quality of their own courses.

Maybe you should stick to articulating your own opinions, rather than expanding on another's for him? I don't care if people play whatever rubbish issues forth from the bowels of Zynga's marketing department, but I'm not going to celebrate it in the name of getting more people playing games, either. At any rate your beef seems to be that I commented at all, or that you think I was rude, or just that I posted something you don't wholly agree with, or that I was criticizing someone's 'comment style' whatever that means (I think the pot might be calling the kettle black on that one). Not sure really what your problem is with me personally but my patience for your pointless sniping has worn thin so I think I'll conclude with 'fuck you' and be done with it.

Your reddit personality is leaking. You seem to have forgotten the 'be civil' aspect of HN. http://ycombinator.com/newsguidelines.html

Feel free to bring the issue up again when you see ducks and poker in the latest FPS.

> Maybe it's because I feel that out of all the latest IPO's and IPO rumors, they have the closest to an actual business

I feel I have to say that this might be the saddest reason to want a company to do well: that its context is even more depressing.

I don't really want them to do well... They're a huge time waster, and distracts people from the important things in life

Isn't that what a game generally is? I don't play games because I get something real out of it - I play them as something to keep me entertained, and thus waste time while I could be doing something else. The same could really be said about any game including sports (though it has physical benefits) and other games like chess.

95% decline in profits doesn't mean much, especially in a young company. It only means they spent much more that quarter than in the previous quarters. It's absolutely normal, if they are trying to grow or investing in their future.

Are you stupid? Zynga's not a young company at more than 4 years. And this is horribly detrimental for any prospect of IPO.

If Facebook was banking on expectations that they'd see a 30% cut of Zynga's revenue this does not bode well for a Facebook IPO.

Sure it does, Zynga's revenue increased over the same period.

Short term, yeah. But Facebook needs its ecosystem to be healthy too. That said, you're correct -- I conflated "profits" and "revenue" and shouldn't have.

Which do you suppose is bigger, 30% of Zynga's FB credits, or 100% of their FB ad spend?

30% of their FB credits AND 100% of their FB ad spend, why of course.

Is it just me or is it meaningless that profits are down by a certain percentage? Suppose a company is just about breaking even. Last quarter it made $1,000,000 (of a revenue of $100M). This quarter it makes $1,000. Profits fell 99.9%. So what?

It no longer made as much money to be redistributed to shareholders or invested in future growth. To be sure, it depends on why the difference between expenses and revenue rose by $999k.

judging a gaming company by quarter?? ok, zynga is not exactly a traditional gaming company, but can you even imagine if we judged blizzard or bioware (when they were independant) by quaterly figures?

Publicly traded game companies are judged by quarterly figures... In the case of Blizzard and Bioware, Activision and EA stock are hugely affected by their revenues. Its not right, and it leads to games being shipped too early to attempt to improve quarterly revenues (I worked on a THQ project where this happened), but it happens all the time.

There's no reason we should tolerate that.

(I'm a gamedev, not a player.)

What can you do about it?

Nothing. The world is as it is. I've come to accept that.

But -- here's the thing -- your moral/ethical compass shouldn't be influenced on account of the world. Think back through history, and at every point, people have been essentially crazy. So the only thing we can do is to have the confidence to know "what's good", and then strive to make our personal lives reflect that. (Without becoming judgmental of others. </irony>)

If you're asking what I'm going to do about it, well... I'm just like everyone else. I train myself for years in every aspect of game development, am building an entire multiplayer game from start to finish without relying on anything except my creativity and capabilities, and will be done around age 39. :) Then I'll use the proceeds to form a company and hire a few likeminded people.

Not go public. But good luck convincing C-suite of that.

Set up a gamified alternative to the stock market with incentives pertaining to long-term growth?

Zynga's having a hard time getting new players, according to this - http://blogs.reuters.com/mediafile/2011/09/27/zynga-herding-...

"Zynga has reported year on year profits that were down by approximately 95%"

"Zynga's total revenues for the quarter were up by 15%, though this was slower growth than the previous quarter, which jumped up by 24%"

Perhaps it's just a little too early to handle basic concepts, but if revenues are up, but profits are down, doesn't that just mean costs are significantly greater? Isn't THAT the big headline here?

I guess the real question is this indicative of a general trend or is this only a one time event? Does this bode well for people who want to write apps for Facebook?

Does anyone know what Zynga did Q3 2010? Doesn't really make sense to measure profitability in succeeding quarters as it does to look at the YoY, right?

The electronic games field is currently flooded with a bunch of one-trick pranksters and bike-shedding assclowns and "gameification experts" who haven't designed a game and flat-out have no clue what they're talking about. I thought the domination of Corporate (post-3D) was the death of decency in electronic gaming, but this "social" dreck makes EArts at its worst look saintly.

If Zynga can reinvent itself as a company that gives a shit about game quality, then I'll cheer for their success. What they represent now is something of which I can whole-heartedly say that I'm glad to see any signs that it's starting to die.

In 1995, Chrono Trigger (a game built by a team of leading artists and designers, not based on "analytics" regarding how to sap the energy and attention of half-bored people) came out. It had a story, there was a sense of progress because the game kept evolving and the challenges got harder (imagine this!) and after 50 hours or so, the game was completed and you went the fuck outside and rode your bike or went swimming. You could New Game+ to beat Lavos at different points in the story and level up to 99 if you really cared, but that was pretty rare and even then, the game came to a close. Also, the game involved a lot more thought than the mindless click-here-click-there of these Games For Idiots like Shartville and Mafia Whores.

I'm a gamer too. I also value a well-thought-out game, but I posit that the Zynga game players on Facebook are after something different. I think Zynga, or at least their industry, is here to stay.

There seems to be far more room for 'content-free' tv, music, and movies than the ones with content. I'm not happy about it, but I can't deny it either.

IMO, the Farmvilles and Mafia Wars of the world are only problematic if they crowd out resources and attention available to produce higher quality games. I have yet to see any evidence to that effect. I'm not saying it's not out there; I'm simply saying that I haven't seen any. Farmville isn't preventing the next Chrono Trigger from getting made, as far as I can tell.

In fact, there's a reasonable, if counterintuitive, argument to be made that Zynga's success is helping the gaming industry as a whole -- by making video games more mainstream, and thereby reducing the stigma traditionally associated with them. In turn, more investment dollars flow into the gaming startup space, and this means that more games get made. So the gamer wins.

I'd love to see some analysis that counterbalances Zynga's effect on the size of the gaming industry vs. its effect on the quality of games being made. That would be an interesting study.

Is there a problem with having diversity in the market? Whilst I can always wish that every development studio were developing games to suit my needs and tastes; obviously it's far better that there are a range of studios producing a range of titles, a large number of which I won't like. I might not enjoy the games that Zynga produce, but it seems pretty clear that there are plenty of people out there that do enjoy them very much; and I'm not sure that more people "playing" generally is a bad thing.

More people playing more games from more companies is only ever going to be a good thing for the industry.

My feelings on this are hard to put into words -- Zynga is the equivalent of churning out crappy romance novels, soulless pop music, kitsch art, or even junk food (made to be addictive, incidentally "nutritious").

"Art" is undefinable, but one heuristic is something genuinely meant to evoke feelings in the audience and perhaps teach them something as a result.

For me, it comes down to intent. Zynga & friends are building "compulsion loops" which aren't meant to entertain, they're meant to addict. I don't have a problem with a diversity of games, everyone has different tastes, etc. but... some things just feel skeevy.

Right on.

I'm no fan of Zynga and their work (as a gamer), but they have many, many (many!) people who enjoy playing their games. That alone is reason enough that should exist.

Zynga have been a massive factor in the evolution of video games, for better or worse.

Amen to that!

Don't normal people who score within 1 or 2 standard deviations of mean IQ deserve some entertainment too?

Chrono Trigger definitely does not require a 130+ IQ to enjoy. Maybe 100.

This isn't about IQ. There are very high IQ people playing Farmville right now. It's need-for-cognition (NFC); does a person desire intellectual stimulation or not? It's correlated with IQ but not absolute. There are people with high IQs who are happy to shoot beer cans and throw bugs in the bugzapper on summer nights, and likewise to play Mafia Wars.

High-NFC games tend to be engaging based on the quality of the game. Does it offer novel challenges and an interesting storyline? Slot machines and Farmville are the epitome of low-NFC games. The problem is that low-NFC games tend to rely on emotional manipulations (fear of "missing out" and social rejection, images of withering crops and dying animals) to get people "hooked" in the game. They're not having fun; they're now psychologically dependent. In extreme cases, people can develop agoraphobia and anxiety disorders.

These "addiction" problems can happen just as easily with high-NFC games (Warcraft, Magic: the Gathering) but there are two differences. First, people tend to graduate from high-NFC games into something else. They put away the Magic cards and start coding. They get tired of merely playing Minecraft and start building levels. Second, with high-NFC games the "addiction" problem is a very rare side effect. In low-NFC games, it's part of the design.

Are you suggesting that people within 1 or 2 standard deviations of mean IQ are unable to be entertained by Chrono Trigger?

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