The development of Facebook games has long been considered a “hot” startup, one that hit all the early markers of success. But is it exempt from the recession?
Zynga was founded in 2007 and within a couple of years it was one of the world’s biggest game companies. Its titles—including FarmVille, CityVille and Words With Friends—have won hundreds of millions of players but only a small number of whom spend vast sums to purchase virtual items that improve their standings in the games. These virtual items make for real money as Zynga’s 2011 revenue topped $1 billion and its initial public offering last December was one of the most anticipated tech debuts of the past few years.
Now Zynga has entered what looks like a death spiral, and nobody is surprised. This week the firm announced that users aren’t flocking to its latest games and as a result it’s lowering its revenue expectations for the year. The announcement sparked another brutal slide in Zynga’s stock price; shares are now trading for less than $2.50 each, more than 75 percent less than at Zynga’s IPO. Zynga has enough cash in the bank to stave off immediate panic, but now that the possibility of earning stock-market millions is looking dim, a number of the firm’s top employees have left.
Do Zynga’s troubles mark the end of the latest tech bubble or will they create the new next?