Zynga quits real-money gaming in U.S., reports dismal Q2

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Social gaming company Zynga (NASDAQ:ZNGA) said it won't pursue a license for real-money gaming in the United States, and will instead refocus on its existing free-to-play social gaming business. The action appears to be one of the first strategic decisions by Don Mattrick, who took over Zynga's CEO position from longtime chief Mark Pincus earlier this month.

"While the company continues to evaluate its real money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real money gaming in the United States," Zynga said in its second-quarter earnings release. "Zynga will continue to evaluate all of its priorities against the growing market opportunity in free, social gaming, including social casino offerings."

Zynga's new position is a dramatic reversal from the company's previous comments on real-money gaming: "We're excited about the entire category of the social casino, from poker to the growth we're seeing in other parts of free, like Slots and Bingo and integrated casinos, especially on mobile where we are seeing a very broad market for a range of products and a fairly broad audience," Pincus said on the company's first quarter earnings conference call, according to a Seeking Alpha transcript.

Zynga had filed a preliminary application in Nevada for licensing, and the topic had generated notable excitement among Zynga investors. The company teamed with Bwin.party to offer real-money gaming services in the UK, with an eye toward eventually bringing such offerings to the United States.

As Zynga bows out of the real-money gaming market in the United States, other mobile companies are stepping up to the plate. For example, Glu Mobile (NASDAQ:GLUU) in May announced it will collaborate with cash and virtual currency platform Skillz (a 2013 FierceWireless Fierce 15 winner) to integrate skill-based cash tournaments into select Android titles in the United States.

Zynga's announcement on real-money gaming was included in the company's second quarter earnings report, which showed decreases in virtually all of the company's key metrics. Zynga's revenue clocked in at $231 million, down 31 percent year-over-year, and its monthly active users (MAUs) decreased from 306 million in the second quarter of 2012 to 187 million in the second quarter of 2013, down 39 percent year-over-year. According to VentureBeat, Zynga's numbers were largely in line with Wall Street expectations, though the company's shares were down around 12 percent to around $3 per share in after-hours trading immediately following the release of the company's results.

In mobile, Zynga recorded 16 million mobile daily active users and 57 million mobile monthly active users.

"Mobile bookings were up 1 percent quarter-over-quarter, that's down 12 percent year-over-year as new mobile game launches did not generate enough bookings to offset aging live games," said Zynga's Mark Vranesh during the company's earnings conference call, according to a transcript from Seeking Alpha. "Mobile bookings represented 19 percent of bookings a year-ago and 27 percent of bookings in the second quarter of this year. Facebook related bookings were 68 percent of total."

"The next few years will be a time of phenomenal growth in our space and Zynga has incredible assets to take advantage of the market opportunity," Mattrick said in explaining Zynga's second-quarter earnings. "To do that, we need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company. We have a lot of hard work in front of us and as we reset, we expect to see more volatility in our business than we would like over the next two to four quarters. I'm privileged to lead Zynga and I look forward to spending more time with our players, employees and shareholders."

As Zynga struggles, the company's one-time partner, Facebook (NASDAQ:FB), is on the upswing. Facebook recently reported dramatic increases in its mobile advertising efforts.

For more:
- see this release
- see this Seeking Alpha transcript
- see this AllThingsD article
- see this VentureBeat article
- see this TechCrunch article

Related articles:
Don't bet on mobile real-money gambling in the U.S. anytime soon
Zynga CEO Pincus steps down, will be replaced by Microsoft Xbox Chief Don Mattrick
Zynga guts 18% of staff, shutters offices
Zynga's 'Draw Something 2' fades quickly after strong start
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Article updated July 26 with details from Zynga's quarterly earnings conference call.

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