4. Zynga Gets Zinged
Since Zynga (ZNGA - Get Report) is well-known for its Words with Friends game, we here at the Five Dumbest Lab want to take this opportunity to offer our good buddies at the company a few words of wisdom: Stop schnorring off Alec Baldwin and find some paying customers quick!
Zynga's stock, which priced at $10 in the online gamer's December IPO, got zinged last Friday and again on Monday after a Wall Street analyst questioned its reliance on a small number of customers for the majority of its revenue. Zynga shares sank below $8 following the report from Macquarie Group's Ben Schachter, who launched coverage of the company with a neutral rating.
It turns out only 2.2% of Zynga's 150 million users pay to play its games, says Schachter, and of these paying customers, a mere 680,000 account for over 70% of Zynga's $800 million annual revenue. Schachter estimates the top 20% of paying players spend over $1,100 per year on Zynga games.Schachter refers to the customers forking over real money to buy virtual items -- like barns and chickens in Zynga's FarmVille title -- as "whales." To be honest, we think it's a bit wacko and a waste of money, but, hey, to each his own, and right now those Zynga's fake barns are holding up better than its very real stock. And speaking of wackos, our second piece of advice is for Zynga is to zoom far away from the likes of Baldwin, who famously got ejected last month from an American Airlines (AMR) flight for refusing to quit playing Words with Friends despite repeated warnings from a flight attendant. While it may seem cool to have the 30 Rock star as an unpaid celebrity endorser, the volatile actor is probably not the kind of whale you want associated with your brand in the long run. With 95% of its sales coming from Facebook, Zynga better make sure the face of its company is not doing something stupid, especially when Electronic Arts (ERTS), which just launched The Sims Social online, is nipping at their heels. With real enemies like these, who needs virtual friends like that guy?