Case Study: Zynga

Zynga Case Study
Name
Institution
Due Date
Zynga Case Study
Identify the major strategic issues and challenges facing Zynga. Analyze the performance of Zynga from 2014 to 2016 using financial information and ratios. Use observations from this analysis and your common business knowledge to justify your conclusions.
One of the issues facing Zynga is the many litigations or lawsuits filed against the company. Zynga has been sued by Nissan as well as a California-based web developer because of trademark and copyright infringement issues, respectively. In their lawsuit, Nissan claimed that Zynga used its trademark without its consent. In some of the cars in Zynga’s Street Racing game, the company had indeed branded some of the vehicles Nissan and Infiniti. After the lawsuit, Zynga decided to change the name of the cars to Sindats and Fujis. With regard to the California-based web developer, the company was sued because of alleged copyright infringement issues, breach of written contract, it was deemed to be in violation of trade secrets, breach of confidence, and breach of implied-in-fact contract. Having a name as big as Zynga in these lawsuits is not healthy for the company, and it started to showcase even in the company’s revenues.
Aside from the above problems, Zynga was also believed to violate ethics within the gaming industry. A former employee quoted the then CEO Mark Pincus saying “You’re not smarter than your competitor. Just copy what they do and do it until you get their numbers.” Pincus was a corrupt leader, and this spiraled out of control. Innovation was not bred at Zynga, and former employees concurred with the statement above. Freelance workers as well as former senior levels employees came out and provided insight into ways Pincus was trying to steal from Zynga’s competitors.
Aside from the above, Zynga also did not have a healthy culture of advancing the business. Originality and innovation under Pincus were all but killed, and this meant that workers could not share ideas or come up with their own. Some employees tried sharing new ideas with Pincus only to have them turned down because he believed they had not been tried and tested elsewhere. This mentality kills innovation and employees either leave or have their productivity levels reduced.
Problems with customers is also another challenge facing Zynga. Apparently, the company was accused of not maintaining a high level of security with regards to the protection of customer data. Complaints against Zynga from the Norwegian Consumer Council to the Data Inspectorate concerning breaches of the Data Protection Act are not an easy feat. Grappling with the issue above damages the reputation of the company, and turning profitable with such a record is all but impossible.
Lack of consistent leadership is also another problem facing Zynga. In a span of 4 years, 2013 – 2016, the company has had three different CEOs. Having a year or less to salvage a sinking ship is not enough time. The company needs to allow its new leaders time to develop, implement, and breed a new employee culture.
Dwindling revenues is also another issue facing the company. Zynga has been posting net losses for a while now. In 2014, 2015, and 2016, the company has posted net losses of $225,900, $121,510, and $108,173 million respectively. These are big numbers and that spell doom for the company. Even the overall picture is that the losses are reducing, it remains to be seen how the company will fare in the coming years.
Analysis of Zynga’s performance from 2014 to 2016 using ratio analysis
Annual profit margin = net income / revenue
In 2014:
Annual profit margin = -225,900 / 690,410 = 0.33 (profit margin). This means that the company lost a value of 0.33 for every dollar it made in 2014.
In 2015:
Annual profit margin = -121,510 / 764,717 = 0.16 (profit margin). This means that the company lost a value of 0.16 for every dollar it made in 2015. However, this value showed that between 2014 and 2015, the company’s financial position was strengthening.
In 2016:
Annual profit margin = -108,173 / 741,420 = 0.15 (profit margin). This means that the company lost a value of 0.15 for every dollar it made in 2016. However, there was a slight improvement in the company’s financial strength in the year 2016.
From the 2016 profit margin, the company is on its way towards recovery. The strengthening financial position albeit small indicates an upward trajectory, and soon, Zynga might turn profitable.
Analyze the online gaming industry using the five forces analysis. Is this an attractive industry? What are the key success factors in the online gaming industry? Is this a dynamic industry, and how does that affect the key success factors?
Competition
The gaming industry is one of the most competitive sectors in the world right now. Countries like China, Japan, South Korea, and the U.S. have tough markets because competition is stiff. In the industry Zynga operates in, there are major players who make life for the company, which is on its road to recovery, difficult. Companies like Machine Zone, Supercell, and EA games are but a few of the gaming companies that mak...