Facebook games bubble might finally be popping. Zynga profit down 95% YOY for 2nd Q

[Virtua]

http://www.joystiq.com/2011/09/24/zyngas-profit-drops-95-percent-in-year-over-year-q2/

I'm no accountant but it certainly sounds bad that their profits are down 95% year on year while their "valuation" grows and Facebook also experiences growth in the same time period. That's how a bubble works, right? Value continues to grow as profits decline, because the owners want to inflate the value and get the most out of it before the bottom drops out.

This commentary on the WSJ article breaks it down a little more -

http://online.wsj.com/article/SB10001424053111903703604576585570928213398.html#articleTabs=comments

They do say that zynga didn't release much in that time period but one of joystiq's commenters says otherwise.

Zynga released Words With Friends for Facebook and Mob
Zynga released Adventure World mid Sep 2011
They updated/released/expanded FrontierVille to PioneerTrail
Added a lighthouse expansion for Farmville (seperate apps)

I think it won't be long before these casual facebook/iphone gamers get bored just like they did with the Wii. They've shown that they're unable to migrate from the initial "hit" to another game or a different experience, and i'm sure that will be just as true with "angry birds" and "farmville". The success of those games is more about the novelty of their platform/presentation than their quality.

Finicky casual gamers have no dedication or interest in sticking with videogames as an entertainment experience. Relying on them for long term profits is a foolish thing for any company. You may see the occassional hit that gets news headlines but these people are not out there trying new things or buying a variety of games.

 

[VAL@CAG]

You bring up very good points man. I was just reading an article in the latest Game Informer which talks about Zynga specifically and they're "techniques" in getting their fans to pay, pay, pay using this micro-transaction method where you are pretty much charged to play - not literally but almost - by being given the option to purchase all these game-add-ons. They 'nickle-and-dime' everyone to death and use things like Facebook to make them spread like a virus. One friend invites a friend that invites another friend whom ends up inviting another friend to "come play with me and farm for me".
Many companies don't like the techniques while some are jumping to try and mimic them.
It's seems though that these are new times and companies are moving in that direction - if a company wants to charge extra for stuff then it's in our hands whether or not we are going to "participate" in the scheme by paying these companies some of our hard earned money.

 

[zerolus]

That was a rather poor article, whoever wrote it really doesn't understand accounting and finance. Profits are just one part of a company's financial statements. That drop off in profits for the quarter most likely came from reinvestment. That reinvestment is obviously paying off if the zynga is generating more revenue and increasing the value of the company. There's also the possibility of tax avoidance if they're investing in deductible expenses.

Regardless of the lower profits for the quarter, the value of the company is still rising so investors will be happy.