Author: by Tom Curtis, Frank Cifaldi

Zynga may be losing players, but it's back on its investors' good sides after performing slightly better than expected last quarter and moving one step closer to becoming an online casino. The company announced it will launch a real money gambling initiative in the UK during the first half of 2013 thanks to a partnership with online gaming operator bwin.party, which will include a slots simulator based on its FarmVille IP. Zynga's been hinting at real money gambling titles for quite some time, and now these projects are finally coming to fruition. Zynga says this is "only a first step" toward a larger online gambling business. Investors seam pleased: Share prices are up nearly 14 percent to $2.42 in after hours trading, thanks both to the partnership and quarterly revenues of $316.6 million that were better than the $256 million analysts were anticipating. Looking beyond revenue, however, things start to look even more troubling. Zynga suffered a loss of $52.7 million for the quarter -- a stark contrast to the $12.5 million in profit the company earned during this time last year. On an adjusted basis, however, the company broke even, in line with analyst expectations.

Losing players

Zynga's biggest challenge during the quarter ending September 30 was in simply maintaining its players, failing to meet the growth it set for itself last quarter. "We didn't create enough new heat for our players by innovating on content an features," CEO Mark Pincus told investors in a conference call. And even those that stayed didn't pay. Zynga's monthly unique paying customers decreased 28 percent from 4.1 million to 3 million between its second and third quarter, with many of those losses coming from the floundering mobile title Draw Something. In addition, many of Zynga's major Facebook titles like CastleVille and ChefVille have had a very hard time hanging onto their audience, and players have been dropping these games faster than they did with older Zynga titles like FarmVille and CityVille.

Scrambling to save money

As it announced yesterday, Zynga has been forced to cut its losses and lay off roughly 5 percent of its overall staff. The company laid off approximately 150 employees across numerous studios (three of which are closing down), and is also shutting down some of its weaker games. The company is reducing investment in The Ville (by way of laying off most of its developers) and is shutting down 13 of its older social games. This is all part of a larger cost reduction plan that also includes reducing advertising and network spending, a plan that CFO David Wehner says will save the company between $15 and $20 million next quarter.

Looking ahead

Zynga's partnership with bwin.party is just the beginning toward a larger Zynga gambling empire. "We view this as a first step into real money gaming, and we believe that it's a good first step," Wehner told investors. "But it's only a first step toward what we think is a large opportunity for Zynga." In addition to gambling, Zynga is also looking ahead to attracting those elusive "mid-core" game players next year thanks to its acquisition of developer A Bit Lucky. The company's also taking mobile a lot more seriously looking forward. During the last quarter, Zynga reorganized its teams to align web and mobile development under the same roofs. Development-wise, Pincus says that all new web games now have mobile and/or tablet offerings in development at the same time.