Zynga investors cashed in their shares yesterday after the company announced plans to withdraw from plans to launch online casino-style games in the US.
According to the San Francisco company it was no longer seeking the US gambling license it would need for moving into casino-style games, which were played for real money, but the company was still pursuing plans to test a gambling product in the UK.
The company posted second-quarter earnings late Thursday, reporting lower losses after reducing staff in a cost cutting exercise.
According to commentators, adding online gambling could have given Zynga a potentially large source of revenue that the company desperately needed.
At the time it went public, Zynga's games, such as "Farmville" and "Mafia Wars," were the most popular on Facebook, but things changed since then, with King.com, the maker of "Candy Crush Saga," displacing Zynga from the top rank in the social gaming market.
With ex-Microsoft executive Don Mattrick taking up as CEO, the second-quarter results are believed to be the last under the direction of founder and CEO Mark Pincus at the company. Mattrick ran the Xbox video game business at Microsoft.
Mattrick has a reputation in tech circles; he is widely regarded as capable of turning Zynga's fortunes around.
Zynga's announcement of a change in plans came as a surprise, but the company reported it lost 40 per cent of its monthly active users in the second quarter, as mobile gamers crossed over to rivals is droves.
According to Mattrick, the company needed to go back to basics, anticipating two to four quarters of volatility as it "resets" its business plan.
The company's shares plunged 14 per cent to $3.02 in afterhours trading, or about 70 per cent below $10 IPO price.
"Zynga is making the focused choice not to pursue a license for real money gaming in the United States," the company said in a statement. "Zynga will continue to evaluate all of its priorities against the growing market opportunity in free, social gaming, including social casino offerings."
Zynga had at one time promised investors it could open up a potentially lucrative new revenue stream by launching real-money casino games around the world. The effort got underway this year in the UK, but such gaming is tightly regulated.
In the US though, real money gaming continues to be illegal in many states, even as signs emerge that state regulators would permit games such as poker.