This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Was Zynga's OMGPOP Purchase Smart?

Stocks in this article: ZNGA

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis ) -- Zynga (ZNGA) has made a lot of acquisitions in the last couple of years in order to maintain its rapid growth.

However, it made its biggest acquisition to date, OMGPOP, in March, purchasing the maker of the top mobile app, Draw Something, for more than $210 million.

Zynga CEO Mark Pincus

Draw Something is the fastest-growing game in terms of users.

It quickly overtook Zynga's top five games to claim the top spot in terms of daily active users, one of the best measures of engagement.

Check out our complete analysis of Zynga here.

Draw Something even passed 50 million downloads this week and continues to be one of the most popular games in Apple's (AAPL) App Store.

Acquiring OMGPOP also gives Zynga the ability to cross-promote its other games to users of Draw Something, giving it greater reach in the mobile gaming market, which it is trying to dominate as it focuses on alternatives to the online social gaming space to drive additional revenue.

However, Zynga may have bought Draw Something right before it peaked, which raises the question whether it overpaid. Even though it is still the number one app in terms of daily active users on AppData, and one of the top paid games on the App Store, its growth curve in terms of daily active users has almost flattened and it has dropped from the top spot on the App Store.

Since its most popular games and apps are quickly drowned out in the hypercompetitive mobile gaming market, there is a good chance that Draw Something will soon be overtaken by another mobile game and see a slow decline in user engagement levels.

Ultimately, whether it was a good acquisition for Zynga boils down to how effectively Zynga is able to leverage its existing user base to drive usage of its other games. Assuming that part of the reason behind the quick acquisition was to quickly hire additional mobile gaming talent, Zynga could also leverage the OMGPOP team to try and build the next big hit, but given the very low probability of hitting the jackpot again, Zynga may very well have overpaid for OMGPOP.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs