Zynga (ZNGA) Needs to 'Explain Something' on Recent Acquisition; Says 'Don't Worry!'

May 24, 2012 7:41 AM EDT
Attention Zynga: don't buy...innovate. (Ugh, on second thought, don't innovate. No one needs a "buzzword" this early in the morning.)

According to reports out Thursday morning, social media gaming leader Zynga (Nasdaq: ZNGA) has come under scrutiny by investors for its bet on the social game "Draw Something." Since debuting about six weeks ago, "Draw Something" has lost popularity amongst fans. Such is the life of a mobile app, no matter how popular (anyone still playing "Angry Birds?").

For its part, Zynga said it is entering a new partnership with DreamWorks Animation (NYSE: DWA) over placing new ads in the game to drive a new source of revenue.

The WSJ observed Zynga shares were chopped down following the acquisition, not to mention the business model of Facebook coming under questioning. The company draws a large portion of its revenue from Facebook (Nasdaq: FB).

From users drawing sketches at the rate of 3,000 per second at its peak, stemming from 50 million downloads, the app has fallen to 18th Top Paid App on Apple's (Nasdaq: AAPL) App Store and just 23rd highest grossing. Research firm AppData said daily users dropped from 14.5 million per day at the time of purchase down to just 7.6 million as of Tuesday.

But Zynga sees "Draw Something" as more of a timeless game. The company has already boosted "Draw Something's" social features, and plans to expand into 10 new languages to address more market opportunities.

The deal with DreamWorks calls for banner ads for its upcoming sequel to "Madagascar," the animated film about zoo animals escaping and getting into wild and wacky adventures. Zynga said its also secured other deals to boost revenue on "Draw Something."

Why Zynga doesn't just come up with a knockoff game like "Perturbed Pigs," "Flustered Fowls," or "Picture Frenzy," is beyond us. It would offer something "new" for users, which Zynga could re-brand and customize ahead of launch.

Whether investors will be satiated with the response from Zynga should be seen within the next few weeks, though its ties to Facebook may still pressure the stock until details of Facebook's IPO are sorted out.

Shares of Zynga are up about 1.8 percent Thursday morning.

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