Zynga to Abandon Real Money Gambling (ZNGA)

Zynga (NASDAQ: ZNGA) can’t seem to get out of its own way.

After reporting mixed earnings Thursday, the company announced that it would abandon its real-money gambling strategy in the United States.

Comparing the company’s earnings to analyst expectations makes Thursday’s earnings report look better than it is. Looking at the report versus what the company was reveals one of the many reasons the stock was down more than 14 percent after hours Thursday.

According to Reuters, Zynga reported $231 million in quarterly revenue—a 31 percent year over year drop. Its number of active users was 187 million—down from 306 million one year ago.

The company posted a loss of $0.01 versus a gain of $0.01 one year ago. Finally, bookings—a measure of virtual goods purchased by players, came in at $188 million versus $302 million one year ago.

Related: Zynga Reports Smaller Q2 Loss; Stock Plunges

These numbers prove that the company needs to make drastic changes fast and that’s what new CEO Don Mattrick is doing by abandoning real money gambling in the United States. The company will, however continue it in the U.K.

According to the conference call, the decision is part of a back-to-the-basics approach that Mattrick wants to take. He wants to return Zynga to making games that customers enjoy but there’s likely another reason.

Real money gambling is illegal in most states and for those who allow it, the infrastructure isn’t yet mature. Before Mattrick, the company had said it would wait until it was legalized at the federal level but there is currently no indication that legalization will happen any time soon.

Although media reports say that the stock dropped as a result of this announcement, the company wasn’t taking active steps to implement it in the United States, anyway, according to some. Others said that the prospect of it being a significant revenue driver sometime in the future was priced into the stock making the selloff likely based on this announcement.

For now, Mattrick gets a free pass. He said that the return to making games people love will take some time and analysts agree.

Digital World Research analyst P.J. McNealy said, "Now that Mattrick is on board, the negative financial news and gaming metrics continue, but for anyone to expect things to change in less than 60 days would just be foolish.”

If there was a silver lining in the report it would be that money spent by gamers increased 14 percent year over year. Every cloud, regardless of how dark, has a silver lining, right?

Disclosure: At the time of this writing, Tim Parker had no position in the above mentioned company.