Zynga‘s (NASDAQ:ZNGA) move to acquire OMGPOP, the maker of Draw Something, has been a pretty controversial one, primarily because it may have bought it literally on the day it peaked. Draw Something has seen a steady decline in the number of daily active users since Zynga acquired it.
Zynga has already tried to fight declining engagement levels by adding additional social features. Last week, it unveiled its plans to monetize Draw Something in a novel way, by using branded words within the game.
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With the new branded words, Zynga will suggest brand words like Doritos, Coca-Cola etc., so users can draw their products and brand logos instead of just random objects. Zynga has already seen interest from advertisers like the National Hockey League, which is buying terms like hockey, puck, slap shot and hat trick. This is a novel way to generate revenue from non-intrusive advertising, and could offer much more value to brand advertisers than just mobile display ads slapped in the faces of users.
Zynga has tried in-game, branded advertising before in games like FarmVille and CityVille and they have generated mixed reactions. This could be a potentially more lucrative revenue source than plain ads and virtual transactions, which is what Zynga generates most of its revenue from currently. If this turns out even moderately successful, there is no reason why Zynga couldn’t try to do something similar with its other games.
Any increase in Zynga’s average revenue generated per user will directly impact its top line growth, and its value, which is derived almost entirely from its game revenue.
Zynga is the world’s largest social gaming company with more than 280 million monthly active users. It competes primarily with Electronic Arts (NASDAQ:EA), Playdom which was recently acquired by Disney (NYSE:DIS) and other independent social gaming studios.
We have a $14 Trefis price estimate for Zynga, which stands nearly 60% above its current market price.