Zynga Disappoints Investors With Lackluster 2nd-Quarter Report
07/25/2012| 05:43pm US/Eastern
By John Letzing
Zynga Inc. (>> Zynga Inc), the online social-game developer that has seen its share price roughly halved since a high-profile initial public offering, issued a lackluster second-quarter earnings report Wednesday that only ate away further at the company's market value.
Zynga also sharply lowered its outlook, helping send shares into a free fall in after-hours trading.
The publisher of popular games such as "FarmVille" and "Words With Friends" reported a loss for the second quarter of $22.8 million, or three cents a share, compared with a year-earlier profit of $1.4 million, or about break even on a per-share basis.
Adjusted earnings were five cents a share, Zynga said, while revenue bookings rose 10% to $302 million.
Analysts polled by Thomson Reuters had expected adjusted earnings of five cents a share and about $344.1 million in bookings, or promised, revenue.
Expenses grew 39%, Zynga said.
"The results are a disaster," said Sterne Agee & Leach analyst Arvind Bhatia. The analyst suggested that the games on which Zynga built its fortunes may not have much staying power. "It's looking more and more like this might have been a fad."
Zynga, of San Francisco, went public in a December IPO with shares initially priced at $10. Since then, the company has been dogged by uncertainty over issues including its user numbers and close ties to Facebook Inc. (>> Facebook Inc), which staged its own, flawed IPO in May and which has since seen its shares fall in value.
Shares of Zynga were down about 46% in the year to date through the market's close Wednesday. The shares tumbled a further 41% to $3 in late trading following the company's earnings news.
Zynga sharply reduced its outlook for the year, citing unspecified challenges on Facebook's service.
Zynga said it now expects adjusted earnings of four cents to nine cents a share, with bookings of $1.15 billion to $1.23 billion. In April, Zynga had projected a profit of 23 cents to 29 cents a share, and bookings of $1.43 billion to $1.5 billion.
"A slight reduction in guidance would've been understandable, but this kind of reduction is mind-boggling," Mr. Bhatia said.
Earlier this month, Zynga's shares were hurt by analyst concern about possible declines in daily active users of the company's games. But Zynga turned in a user figure Wednesday that was generally in line with expectations.
Zynga said the number of daily active users rose 23% in the second quarter compared to the period last year, reaching 72 million. That compares to 65 million daily active users reported in the prior quarter.
Zynga makes its games available on Facebook and via mobile devices. However, Facebook has made only tentative progress in expanding into mobile, and Zynga has been compelled to seek out more independence.
For the first quarter of this year, Zynga has said about 92% of its revenue was generated through Facebook.
--Ben Fox Rubin contributed to this article.
Write to John Letzing at email@example.com.
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