Three weeks into the job, Zynga’s (ZNGA) new CEO, Don Mattrick, had the unenviable task of presenting the gamemaker’s disappointing results for the past quarter. He added, for good measure, that Zynga won’t be pursuing a license to get into online gambling, which has recently been legalized in several states.
That’s a meaningful shift for the company. Zynga applied for a gambling license last year in Nevada, and online gambling, where real money changes hands, was seen as a potential source of new revenue for Zynga. As regulators weighed the issue, the company continued to lay off staff and close offices to trim its costs. The pullback from gambling announced Thursday means Zynga’s revenue will continue to come largely from selling virtual goods inside its games. (Advertising is just 12 percent of the company’s revenue.)
If that’s the case, it ratchets up the pressure on the company to figure out mobile, and quickly. At the end of 2012, Chief Operations Officer David Ko said the company had 72 million average monthly users on mobile. In yesterday’s earnings, the company claimed 57 million—a 20 percent drop in six months. Meanwhile, rival King.com, which developed the popular Candy Crush Saga game, has overtaken Zynga as the top gamemaker on Facebook (FB), in part due to its appeal on mobile.
Given all this news—little of it what investors hoped to hear—Mattrick began with a statement:
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. 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.
Zynga has $1.1 billion in cash, which will buy some time for Mattrick to regroup. The bigger question, however, is how many users will be left when he does?