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Zynga management has proven it's "not guilty of hubris" following IPO

Zynga management has proven it's "not guilty of hubris" following IPO

Thu 22 Mar 2012 1:04am GMT / 9:04pm EDT / 6:04pm PDT
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Analysts speak up on Zynga's big purchase of Draw Something studio OMGPOP

Zynga's IPO late last year didn't go over as well as the social juggernaut had hoped (in fact, Forbes labeled it "SplatVille" and shares quickly fell below the $10 price). In the months following, however, Zynga turned it around, putting more emphasis on mobile, launching its own platform, hiring key executives like former EA digital head Barry Cottle, and just today purchasing fast-rising developer OMGPOP, responsible for the hugely popular Draw Something app.

Zynga still has its share of critics, but there's no denying that the company is still the top dog in social and the OMGPOP acquisition could be a key to its future growth. GamesIndustry International caught up with several leading analysts to discuss the impact of OMGPOP.

The consensus would appear to be that Zynga just made a great move.

"I think it's smart. They did really well with Words with Friends, and this seems like the same type of evergreen product," observed Michael Pachter of Wedbush Securities. "I think they will monetize it well, and expect a long tail. It makes the moat between them and the competition even wider."

"The acquisition of the talented team at OMGPOP provides both relief against a potential competitor while adding ammunition to their IP belt for the future battle ahead"

Greg Short, EEDAR

Billy Pidgeon of M2 Research agrees completely. "I think this is a smart buy for Zynga. Zynga not only acquired the top performing word game in the App Store, but also strong talent and up to 100 million users. And of course it's a great narrative (and I'd hope a strong example for other publishers) to buy rather than clone a successful competitive franchise, but Zynga gets a lot more here," he said. 

Pidgeon continued, "OMGPOP is a great company with a small and very creative staff. Draw Something is a huge hit, and has built a large community driven by creative, personalized gameplay. OMGPOP has a strong multiplayer games service with its own games-focused social network and a proprietary points to cash system. OMGPOP's games have a low resolution, indie feel and seem to be particularly popular in the teens to young adult demographic. This will broaden the base of the mainstream audience that Zynga and other casual games publishers typically tap into."

Pidgeon also noted that the New York location of OMGPOP could help boost the city's relatively small games presence.

"With the OMGPOP buy, Zynga can better consolidate its position in mobile and perhaps in Facebook as well, with the upcoming Streets game created with Ghostface Killah, which will obviously have much more appeal than CityVille for a younger demographic tuned into hip hop. The best outcome for both Zynga and OMGPOP would be to keep CEO Dan Porter and his smart and efficient staff onboard, giving them creative autonomy and the resources to scale. This acquisition could serve as a model for Zynga and other large publishers going forward. Also the quick rise of Soho-based OMGPOP could help raise New York City's profile as a game industry destination," he said.

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The acquisition is a sure sign that Zynga is definitely taking the challenge of mobile seriously, as EEDAR CEO Greg Short explained to us.

"The purchase of OMGPOP by Zynga further reinforces the fact that mobile gaming is a critical key to the success of Zynga's future revenue growth," he said. "It is expected that Zynga will come under increasing pressure as more traditional IP holders such as EA and Disney begin to flex their brands muscle into the mobile and social gaming spaces over the next few years.  The acquisition of the talented team at OMGPOP provides both relief against a potential competitor while adding ammunition to their IP belt for the future battle ahead."

"Management has not gotten fat and happy since their IPO and continues to be a threat to the elder software statesmen in the industry, especially Activision Blizzard"

Asif Khan, Panoptic Management Consultants

Colin Sebastian of RW Baird concurs: "I would say it's consistent with their strategy to acquire some of the more successful developers in the social and mobile game market. OMGPOP is having success with Draw Something on both smartphones and Facebook, which is important to Zynga. I assume the thought process is that using Zynga's platform and user base should drive even faster growth for OMGPOP titles."

If anything, this newest addition to the Zynga family demonstrates that the company won't stand still. The competition has a ways to go to catch up to the 800lb gorilla and it's not getting any easier. Asif Khan, CEO of Panoptic Management Consultants, told us that Zynga is not getting cocky, despite their success.

"Zynga is clearly focused on growth and is watching their backs for any up and comers. This acquisition of OMGPOP is an indication that Zynga management will not be guilty of the hubris that plagues many management teams in the video game industry," he said.

"OMGPOP's Draw Something app has clearly been stealing away minutes from the great Zynga apps that have dominated many mobile users' time. If you can't beat them, buy them. Zynga has a tremendous cash hoard and today's acquisition is exactly what they needed to do to keep momentum and growth investors happy. It remains to be seen if they overpaid for OMGPOP, but they will be able to make back that cash within a year," Khan continued.

Khan concluded that Zynga's latest purchase shows why traditional game companies, not just social developers, are being threatened by Zynga's continued market dominance.

"Strengthening their intellectual property portfolio is a great idea in this casual gaming arms race that we are witnessing unfold before our eyes. Even though our Game Trader feature rates the stock as a Don't Buy, we can't help but be impressed by today's acquisition. This kind of strategy can help Zynga continue to grow into its lofty price to earnings multiple over time. Management has not gotten fat and happy since their IPO and continues to be a threat to the elder software statesmen in the industry, especially Activision Blizzard," he said.

1 Comment

Andrew Goodchild
Studying development

1,227 387 0.3
Why a threat especially to Activision? The major publisher who has the least visible interest in the areas Zynga operates? If he had said especially EA, I would have understood.

Posted:2 years ago

#1

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