Did you miss the bit where they use $400M to generate that gross revenue?
How do you think they're going to save > $10M per month to put themselves in to decent profit? Which costs will they cut?
ZNGA could do the same thing. They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc, and their current earnings for at least a few quarters wouldn't be affected immediately. They still need to create new games to entice those same users
>They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc //
Sounds great. When you say SGA, isn't that mainly wages. So, lay off most of their staff, do away with a large part of development and still generate the same earnings. Won't that just cause them to fail slowly?
I can see how Yahoo can coast on inertia to some extent but aren't Zynga more reliant on novelty? Yes new people come along, but they're entering - in social gaming terms - a pool of people who've already tired of a particular game/games.
What do you make of reports like this http://arstechnica.com/business/2012/08/as-zynga-stock-price... suggesting that several of the top developers are gone/going. Surely that would make it harder to cut R&D and make great new games.
Will be interesting to see how things progress for sure.
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.