Zynga (NASDAQ:ZNGA), the largest developer of games for Facebook, has had a rough ride since its IPO last December, something it hopes the acquisition of four mobile video game companies will help address. The purchases, which took place from August through December 2011, were confirmed on Jan. 18 by Zynga’s chief mobile officer, David Ko. Zynga now owns San Francisco-based Page 44 Studios and HipLogic, New York-based Astro Ape Studios and Game Doctors, a German company.
Fans of Facebook have been playing wildly popular Zynga games such as FarmVille, Words with Friends and Mafia Wars since 2007, and the company’s games consistently attract more players than those of any other developer for the platform. Facebook analytics firm AppData reports that Zynga applications draw an average of almost 222.5 million users per month, crushing the next-largest developer at under 68 million monthly users.
However, despite having 66 games in release for Facebook, Zynga has been less successful in translating casual games played on social media sites to paid apps for mobile devices. Many of its most popular titles have been ported to mobile gaming platforms but they’re free, relying for revenue on in-app purchases of Zynga virtual currency and game credits.
Three of the four companies Zynga picked up have developed successful game apps sold through Apple‘s (NASDAQ:AAPL) App Store and the Android Market, including hit premium titles such as the award-winning World of Goo, which has sold over a million copies, and Game Doctors’ ZombieSmash — games that have been priced as high as $10 each. (Page 44 adapted World of Goo for mobile in collaboration with game’s original developer, 2D Boy.)
The fourth company, HipLogic, has developed a mobile content delivery platform that offers alternative app store capabilities for devices running Microsoft‘s (NASDAQ:MSFT) Windows Mobile or Nokia‘s (NYSE:NOK) Symbian operating systems.
When Zynga launched its IPO in December 2011, it raised $1 billion — the largest IPO since Google‘s (NASDAQ:GOOG) in 2004. However, Zynga’s stock quickly cooled from its initial $10 offering price, and currently is trading in the $8.90 range. A big part of the decline has been investor wariness over Zynga’s reliance on Facebook, which has made rule changes in the past that hurt Zynga, such as taking a larger cut of in-app revenue through Facebook Credits, Facebook’s virtual currency.
While social media gaming is profitable and the virtual goods that players buy through casual gaming titles such as FarmVille are expected to pull in $2.2 billion in revenue through 2011, mobile gaming revenue is pegged at $5 billion for the same time period. In the U.S., rapid growth in the adoption of Apple’s iOS devices (iPods, iPhones, and iPads) and Android smartphones has seen even hard-core gamers shift in droves from dedicated portable game hardware like the once-dominant Nintendo DS. In 2007, Nintendo (PINK:NTDOY) shares were trading in the $80 range, but are now trading at under $17, a reflection of the gains by iOS and Android, from just 19% of mobile game software revenue in 2007 to 58% in 2011.
By expanding beyond casual, social media gaming and taking advantage of the growing market for mobile games on smartphones and tablets, Zynga can diversify beyond Facebook and build a significant presence in mobile gaming. Its choice of acquisitions makes it clear that Zynga is looking to beef up its offerings in the premium game market to take advantage of players who are willing to spend more money on quality titles. And it’s aiming to make inroads into the smaller (but less competitive) app market for Symbian and Windows Mobile smartphones.
