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Chastened Pincus Talks Zynga’s Mobile, Gaming Potential

Mark Pincus struck a chastened tone, kicking off the company's earnings call with the acknowledgment that things haven't been going as planned at Zynga. "The last few months have been challenging," Pincus said, saying that the company's results have not met his own expectations, and average user payments have been declining faster than expected.

David Paul Morris | Bloomberg | Getty Images

Pincus took responsibility, saying that Zynga wasn't able to bring new games to market fast enough to stem declines. Why is Zynga losing market share on Facebook? Pincus said it was because of failure to execute.

(Click here to get the latest quotes for Zynga.)

But Wall Street liked what it heard on Pincus' plans to make money on mobile and online gambling; the stock soared more than 10 percent after hours. This after the company announced Tuesday that it's slashing 5 percent of its staff and shutting down some games. The company reported earnings and 'bookings' right in line with expectations – zero cents in earnings per share on $256 million in bookings. Bolstering the stock, Zynga announced approval of a $200 million stock buyback plan.

(Read More: Zynga Hits Earnings Target, Announces Stock Buyback.)

But even more important than the quarterly numbers, today Zynga announced its first move into real-money gaming. The social gaming company is partnering with bwin.party, to offer real-money online Poker and Casino games in the UK. Pincus wouldn't break down the financial arrangement of this new deal, but said that he views this as a crucial "first step to what is a large opportunity" in online gambling.

Zynga needs this new revenue: though the number of daily active users grew 10 percent from the year ago quarter, they declined from the prior quarter. And worse, the amount of money the daily active users spent on Zynga declined 19 percent from a year ago.

What's responsible for the decline? In addition to the games not being compelling enough and too few new games, Zynga faces a mobile problem. People are shifting away from playing games on their desktop, to mobile devices, where Zynga faces more competition and people spend less money on Zynga games than they do on their desktop ones.

(Read More: Zynga to Slash Staff by 5%, Retire 13 Games.)

Pincus says it's tackling this mobile issue in a couple of ways. It's ramping up its mobile game launches, now planning to introduce four new mobile games and two new web games every quarter. It's also re-organizing its teams to combine web and mobile development. It's also figuring out new ways to cross promote mobile games, the way Zynga has used its network effect on Facebook to drive adoption of new games. And it's starting to work, the company says about 20 percent of its revenue comes from mobile games, up from about 6 percent a year ago. Now the question is whether it can start making enough money on the mobile to jumpstart.

—By CNBC's Julia Boorstin
@JBoorstin

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.