How Zynga's CEO is preparing for a comeback

Zynga, the social gaming publisher of hit titles like Words With Friends, announced a precipitous decline in monthly users and the resignation of its CFO on Tuesday.

The company’s stock, which has not traded above $US3.50 in more than a year, barely budged in after-hours trading.

No matter how you slice it, Zynga has fallen out of favour with Wall Street.

But CEO and co-founder Mark Pincus, who returned to the top job at Zynga earlier this year, says that the company is primed for a turnaround.

“We’re making deep investments both on new IP and backend technologies,” Pincus told Business Insider in an interview on Tuesday.

This comes less than a day after the bombshell news dropped that game publisher Activision Blizzard would be buying King Digital, the developer of the Candy Crush Saga mobile game phenomenon, in a $US5.9 billion deal — more than two times Zynga’s market cap.

Pincus, incidentally, says that acquisition “makes a ton of sense for Activision,” giving it access to key demographics.

New investments

Basically, Pincus says that while the popular perception of Zynga is as a “marginally profitable or unprofitable company,” depending on the quarter, it’s investing in the future.

Under his watch, Pincus says, he’s led the company to get out of unprofitable markets like sports (probably good timing, given the rise of DraftKings and FanDuel). Plus, Zynga is continuing to shift its business model away from the shrinking Facebook games market and investing more in mobile games, where the money’s being made.

Instead, he wants Zynga to focus only on the genres it’s good at. For instance, the social Scrabble clone Words With Friends is still leading its category, and Zynga has successful poker and slot machine apps, too.

It’s harder to accomplish than it sounds: Even Rovio, the company behind Angry Birds, has been struggling lately after failing to produce another mega-hit. And Candy Crush Saga itself has seen a shrinking pool of players as people move on to the next big thing, and the next, and the next.

“It’s only getting more competitive, and the quality bar is going up,” Pincus says.

Long term vision

To that end, under the guidance of just-departed CFO David Lee (Pincus says that Lee is leaving to pursue a new opportunity), one of Pincus’ first efforts was to cut $US100 million in expenses — including laying off 18% of its workforce — so the company could find a way to reach profitability by further developing the games it has, instead of betting on future hits.

Zynga is also still committed to the idea of social gaming, with the vision that it could be a new “social medium” in and of itself, Pincus says.

While competitors like Hipster Whale, the creator of the popular “Crossy Road” game, only make a handful of titles that are all in the same vein, Pincus says that Zynga’s broader focus gives it more mass-market appeal.

Hipster WhaleHipster Whale’s ‘Crossy Road,’ one of this year’s biggest mobile gaming hits.

But there are bumps on the road ahead: In January of 2014, Zynga bought NaturalMotion, the developer behind hits like “Clumsy Ninja,” as the company invests in more action and adventure-oriented games.

That investment hasn’t yet paid off, but Pincus says that it’s just a matter of time and focus. And in the short term, Pincus acknowledges that it’s hard to see it that way from the outside.

“It makes it a harder strategy to show when you’re a public company,” Pincus says.

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