Why Zynga Stock Dipped Today

What happened

Actions of Zynga (NASDAQ: ZNGA) fell on Friday after the video game developer warned investors that its growth was slowing. As of 3:40 p.m. EDT, Zynga’s stock price was down 18%.

So what

The owner of games such as Words with friends and Master of 3D Entanglement saw revenue increase 59% year-over-year to $ 720 million in the second quarter. The gains were fueled in part by a 110% increase in ad revenue, to $ 133 million.

Zynga’s acquisition of hyper-casual game publisher Rollic in October has helped it grow its advertising business in games. The company said Rollic recently surpassed one billion game downloads. “We are blown away by Rollic’s performance so far this year,” Zynga Publishing Chairman Bernard Kim said in a press release.

However, Zynga noted that at the end of the quarter, economic reopenings and reduced social distancing measures began to negatively impact its player engagement levels and gaming revenue. “As COVID restrictions have started to lift, we have seen people start to play less,” CEO Frank Gibeau said on a conference call with analysts.

These trends prompted Zynga to cut its full-year reservation forecast – a key sales metric that takes into account changes in deferred revenue – by 3% to $ 2.8 billion.

Now what

Investors have grown accustomed to strong bookings and strong revenue growth for gaming companies during the pandemic. But as vaccinations increase and people spend more time away from home, the growth of the gaming industry is slowing. Investors are now resetting their expectations for Zynga and other game publishers, which is pushing their stock prices down.