Zynga Inc (ZNGA): Mobile Is Destroying This Company, But Others Are Doing Better

Smartphones and mobile computing are the wave of the future. In Q1, 2013, only 76.3 million PCs were shipped while 216.2 million smartphones were shipped. For the first time, more smartphones were shipped than basic feature phones. Computers continue to shrink, and consumers want to read their email, check the news, and watch videos from their handheld device. Zynga Inc (NASDAQ:ZNGA) is handling the transition to mobile computing very poorly and it looks like the company may be digging its own grave.

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Zynga Inc (NASDAQ:ZNGA) makes a number of arcade-like social games where users can play and compete with their friends. The world’s transition to mobile computing has a great impact on Zynga Inc (NASDAQ:ZNGA), because its games are social in nature. Traditional gamers focus on strong graphics and realistic computer generated physics. They are happy to stay with powerful consoles and PCs, but Zynga’s target market of non-traditional gamers are different.

Zynga Inc (NASDAQ:ZNGA)’s Q1, 2013 quarterly filling shows that year over year, its number of average daily users has fallen from 65 million to 52 million. Its number of average monthly users has fallen from 292 million to 253 million. Crucially, the number of players who made at least one payment during the month fell from 182 million to 150 million. The company is a disaster in the making with an earnings before interest rates and taxes (EBIT) margin of (6.4)%, a profit margin of (9.8)%, and a return on investment (ROI) of (6.1)%.

Relative to other tech companies, Zynga is an exceptionally poor performer

Making the transition to mobile has been challenging for a number of companies, but others have been able to successfully position themselves for growth. In 2010, Google Inc (NASDAQ:GOOG) acquired the mobile advertising network AdMob for $750 million. AdMob helped Google boost its mobile offerings and ensure that it can control the mobile ecosystem from its Android operating system (OS) to the ads users see.