Zynga stock drops after gambling plans fizzle

Zynga stock falls 17 percent in morning trading. Zynga says it's dropping plans for a US gambling license that would let it offer casino-type online games with real money. 

Robert Galbraith/Reuters/File
The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco in 2012. Zynga will largely abandon its long-running efforts to build a real-money gaming business in the United States, a prospect investors once believed to be the struggling company's sole lifeline. Zynga stock tumbled on the news.

Zynga investors cashed in their shares Friday after the company said it was dropping its plans to pursue online casino-style games in the U.S.

THE SPARK: The San Francisco company said late Thursday that it was no longer seeking the U.S. gambling license it would need to move into casino-style games, which are played for real money. The company still plans to test a gambling product in the United Kingdom.

Zynga posted second-quarter earnings late Thursday and reported that it had trimmed its losses. The company has been cutting staff to reduce costs.

THE BIG PICTURE: Adding online gambling could have given Zynga a potentially large source of revenue that the company badly needs.

When Zynga went public late 2011, its games, such as "Farmville" and "Mafia Wars," were the most popular on Facebook. Things have changed since then. King.com, the maker of "Candy Crush Saga," has unseated Zynga as the top social games maker.

The second-quarter results were Zynga's last under the direction of founder and CEO Mark Pincus. The company brought aboard former Microsoft executive Don Mattrick as CEO , who ran the Xbox video game business.

THE ANALYSIS: Mattrick is well-regarded in tech circles and there is some optimism in his ability to turn Zynga's fortunes around.

Wedbush analyst Michael Pachter sees changes within Mattrick's first 180 days at the company. "We believe Mr. Mattrick will act swiftly to focus on a handful of new initiatives and to right-size Zynga's staffing levels," Pachter wrote.

Zynga did not immediately respond to an emailed request for comment.

SHARE ACTION: Zynga Inc., fell 60 cents, or 17 percent, to $2.90 in morning trading Friday, then stabilized in early afternoon trading. The stock is down 63 percent since its initial public offering in December 2011.

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