Zynga losing $150 on every paid customer - Analyst

Sterne Agee firm consultant says casual gamemaker spent more in last nine months to acquire customers than it made from them.

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Casual gamemaker Zynga went public in December, but its stock price quickly lost its financial footing, dipping significantly from an initial offering price of $10 per share to a present valuation of $9.02 as of press time. Now, one analyst has offered a new, not-so-rosy, take on the financial situation of the company.

Zynga is seeing red, according to Bhatia.

Sterne Agee analyst Arvind Bhatia recently told Benzinga that he believes Zynga is losing $150 on every paying customer it attracts to its business.

"They've given us the sales in marketing dollars for the first nine months: $120 million," he said. "Almost all of that is for acquiring customers. We also know that they had 3.4 million unique payers in the September quarter, which is up from 3 million at the end of December 2010. In other words, they added 400,000 additional payers and they spent $120 million to acquire them."

This math--$120 million divided by 400,000--equals $300 per person. And Bhatia estimates these users are spending about $150 throughout their relationship with Zynga.

"Our concern is [whether or not it's worth] spending $300 to get these customers when people are spending $150. That math won't work for very long," he said.

Bhatia admitted "That's our math; that's not what the company says," but he does see a "slowdown in social gaming in general" not limited exclusively to Zynga.

"I don't think it's just Zynga," he said. "But Zynga clearly has tried many games, and they're finding that the interest level isn't necessarily going up. We've seen many games launch and then fade within a few weeks."

Bhatia's financial appraisal of Zynga may be bleak, but not all analysts agree. Last month, Wedbush and Lazard Capital Markets consultants expressed bullish predictions for the company moving forward.

For more on Zynga, check out GameSpot's previous coverage of the mobile game company.

Discussion

45 comments
theKSMM
theKSMM

When will game makers learn that casual gamers treat games casually? They're here today, and gone tomorrow when something else catches their eye.

Darkflare_EX
Darkflare_EX

Oh man, now my mom has to look for something else to do that doesn't involve Farmville.

Double_Wide
Double_Wide

DEATH TO CASUAL GAMING...MWAH HA HA HA HAAAAA!

eliebaz
eliebaz

if people wanted to buy these or subscribe to these games they'd have bought proper games, on a real system rather than on their phones which frankly being a PROPER gamer is repulsive

TKandPBC
TKandPBC

The method this analyst uses seems awfully simple. Either way, marketing costs can always be cut. It's a matter of whether they can retain their install base, and I'm highly skeptical that they can do that.

MGSKojima
MGSKojima

oh no, whatever.shall.they.do?

Stonecutters908
Stonecutters908

IMO industry analysts in the gaming sector are down right pitiful. It doesn't surprise me that they are so wrong almost all the time. It is this obsession with continual growth so they can tell their investors where to put their money and show them some quick and dirty growth before the bubble pops. None of their analysis is seemingly based on the notion that gamers still like to play good games, not just any convenient game and the rest of the social crowd is nothing you can bank on. They spelled doomed for the 3DS because of cheap mobile and look at it now. Mobile companies are going bust and Nintendo is doing great with the 3DS now. Industry analysts are not really gamers, I guess that is the problem.

kuda001
kuda001

It took just over a month from '$1bn IPO' headline to the 'losing $150 on every paid customer' headline. What's more worrying is the fact whilst anyone with some knowledge of the gaming industry could see this coming the so-called experts couldn't.

Zloth2
Zloth2

Zygna doesn't make games, they make cheap psychology tricks to try and get money out of people (like calling the game free then getting $150 out of the average customer).

Silphatos
Silphatos

Hope they get bankrupt, sorry but I hate social games that much.

Bortson
Bortson

Zynga should just do what AOL did back in the mid 90s. Instead of accounting for marketing properly as expenses, they should just capitalize them as deferred customer revenue and treat it as an asset. Then that'll make Zynga look good for their next quarterly report and take the money and run and just finish the company off now instead of a long slow spiral toward death.

firehawk998
firehawk998

Casual gamers in general are like magpies. They search for one shiny thing gets interest with and then few days later finds another one and abandons it. First it was the Wii( please I dont want to debate anyone about the library as there were some great games), then Zynga and now the iphone games.Few years later the Iphone games will fall out of favor with this crowd and they will move to something else. Lesson here is fine to attract casuals for huge profits with little investment but in the long run it is gonna affect you badly.

firehawk998
firehawk998

But but all those analyst, social game devs, news media they all said that social games are the next evolution of gaming all those hard core games will extinct. Clearly this article is so wrong / Sarcasm . Dear god I hope the cancer that is Zynga dies .

bizuit
bizuit

@FoeCrusher, getting greedy by throwing money at something to attract new customers.....uhhhh, that's what all business do

TriumphantToad
TriumphantToad

Uh...I'm pretty sure this is anything but unexpected. Fads are called fads for a reason.

X-RS
X-RS

Wait... So cashing in on "social" trend won't last forever? 0_o

servb0ts
servb0ts

Somebodys Accountant needs to be fired lol.

AuronAXE
AuronAXE

Its not going to pay off. Thats the beauty of casual customers. You think you have them as good customers but really they're just trying your product, in five minutes they'll delete it and never touch it again.

Needles-Kane
Needles-Kane

"there is a reason they are called casual gamers they aren't interested in gaming and the money they pay for gaming is at the bottom of their lists" Yep, just another fad. Like systems built on a gimmicky motion control. I think a certain company is going to be in for a rude awakening when the casuals have bored of their console toy and don't buy their next version and they've alienated themselves from real gamers.

MetalDragon199
MetalDragon199

there is a reason they are called casual gamers they aren't interested in gaming and the money they pay for gaming is at the bottom of their lists

Reyveign
Reyveign

Knew it'd bite them in the rear end eventually. Those social games are "free to play" but the cost to enjoy them is simply too high in my opinion. Not worth bothering past a certain point. Apparently I'm not alone in my opinion.

prostar343
prostar343

Interesting analysis. Maybe Zynga is reaching the ceiling for the amount of profits a video game company can hope to achieve limiting themselves to Facebook/iOS social games.

Lhomity
Lhomity

I'd feel like a broken record going on about the many flaws and potentials risks of free-to-play, as well as the clearly limited appeal Farmville ever had, so I'll just say:

ColdfireTrilogy
ColdfireTrilogy

Yey down the drain for you Zynga ... may save a few lives in the end if negligent mothers pay a bit more attention to their children and less to their e-cows.

Vari3ty
Vari3ty

I think it may be time for other publishers to realize casual "free-to-play" games are not everything they're hyped up to be.

G_gglypuff
G_gglypuff

A casual game is what it is. What did they expect?

wurdmann
wurdmann

Wish I would have short sold Zynga's stock.

hemoleech
hemoleech

That's the thing with casual gamers. They aren't going to stick with games forever like us real gamers. We're where the real market is!

CraigB
CraigB

That report seems to assume that there is no user churn. Let's say that only 400k of the original 3 million users quit during that period. Then Zynga's marketing brought in 800k users, and the 120million spend would even out.

Freezezzy
Freezezzy

That's pretty funny considering that most (or all) of Zynga's games are based heavily around the pay-to-win formula. Then again, so are most Facebook games.

parasiticpest
parasiticpest

This is precisely what pisses me off GREATLY about social gaming and all the cries about "hardcore/portable/whatever" is dead. Yeah iPhones and mass games are "cute" and work for a quick buck now, but this group is and has always just been following a fad. Too many social games these days? Oh well, time to do something else. Facebook not as "cool" as it used to be? Oh well, time to do something else. PAY ATTENTION TO YOUR CORE GAMERS. WE SPEND BILLIONS ON GAMES AND CONTINUE TO PAY. Stop making "casual" crapware and make real games - a game with just SNES level graphics won't cost much, can last as classics through today, and make lots of money, and no Farmville doesn't count.

PixelAddict
PixelAddict

Sounds like when Amazon.com started. Lost money all the way to the bank. Also reminds me of the South Park profit model: Step 1: Collect underpants Step 2: ?? Step 3: Profit

FoeCrusher
FoeCrusher

Sounds like people got greedy and threw money at trying to attract new people. Just another fad, that created another buble. Nothing new here...."fools and their money will soon be parted".

NeilCardiff
NeilCardiff

@Megavideogamer More appropriately those customers are spending $150 on farmville (wtf /facepalm) etc, when they could be buying a console.

FacesMan
FacesMan

Mass Effect has permanently associated itself with the name Bhatia for me in my head.

Megavideogamer
Megavideogamer

Losing $150.00 per person. Thats enough to buy a Wii console Maybe if Zynga joined forces with Nintendo and had a Zynga channel on the Wii then they might make some money. Since the Wii did well because of the causal games it mainly offers.

Rubius02
Rubius02

And people thought that this was a great IPO...

Evenios
Evenios

fun i wish someone would spend more on me :-)

endorbr
endorbr

That's what happens when you vastly over estimate (over exaggerate) the appeal of something. The majority of Zynga customers don't give them a dime for all those social games.

gatsbythepig
gatsbythepig

This is why I won't buy any stock until Zynga hits 5. I t was overvalued by $500,000,000.