Zynga Plunge Drags Facebook After Gaming Results Miss Estimates

Thursday, 26 July 2012 15:38

Written by Editor

July 26 (Bloomberg) -- Zynga Inc., the biggest developer of games played on Facebook Inc.’s social network, fell as much as 42 percent in extended trading yesterday after missing analysts’ second-quarter revenue and profit estimates.

Facebook, which reports its first quarterly results as a public company later today, also slumped as much as 10 percent in response. Zynga posted sales yesterday of $332.5 million, less than the average $343.1 million analyst projection compiled by Bloomberg. Excluding some items, profit was 1 cent a share, less than the 6-cent estimate.

Zynga blamed the shortfall in part on Facebook, saying changes to the site made it harder for users to find existing games. It’s also competing with a growing number of applications on the social network and mobile devices. A drop in sales of virtual goods from the first quarter is a sign of fatigue among users, said Arvind Bhatia, an analyst at Sterne Agee & Leach Inc.

“It’s a disaster,” said Bhatia, who is based in Dallas. “It’s starting to look more and more like a fad, and any hope of a second-half recovery is shot with these kinds of numbers.”

The shares fell as low as $2.93 after the report yesterday. The drop in late trading added to the 49 percent decline in Zynga since its initial public offering in December.

Facebook Link

Zynga, based in San Francisco, makes money by selling virtual goods within its games -- say, a gun in “Mafia Wars” or a tractor in “FarmVille.”

Zynga cut its 2012 outlook for bookings, a measure of sales of virtual goods, citing Facebook’s website changes, which deterred users from returning to play older games. The social network is highlighting new games at the expense of more established titles, John Schappert, chief operating officer of Zynga, said in a telephone interview.

Facebook “changed some of the algorithms for surfacing, which affected player engagement,” Schappert said. Posts in a player’s news feed that promote a game and requests they send to invite their friends are no longer as prevalent, he said.

Facebook shares tumbled to as low as $26.50 following Zynga’s report.

Lower Forecast

Zynga said 2012 bookings will be $1.15 billion to $1.23 billion, down from an April projection of $1.43 billion to $1.5 billion. Zynga also said it expects 2012 earnings, excluding some items, of 4 cents to 9 cents a share, compared with a prior range of 23 cents to 29 cents.

The lower forecast was also prompted by a delay in the introduction of “The Ville,” a real-world simulation game Zynga released last month, and user declines in “Draw Something,” the mobile game it acquired with its $180 million purchase of OMGPop Inc. in March.

The company makes the five most popular games played on Facebook, according to AppData. “Texas HoldEm Poker,” with 35.2 million monthly active users, and “Bubble Safari,” with 28.2 million users, top the social gaming charts.

Three of Zynga’s oldest games accounted for 60 percent of its revenue in the quarter, with “FarmVille” contributing 29 percent of sales, poker making up 18 percent, and “CityVille” generating 13 percent, Chief Financial Officer Dave Wehner said on a call with analysts yesterday.

Gambling Next?

Zynga plans to enter real-money gambling by the middle of 2013, pending regulatory approval, Schappert said.

“We are actively pursuing the development of a product in real-money gaming. It is not for the U.S. -- it is for international” markets, he said.

The company posted a second-quarter net loss of $22.8 million, or 3 cents a share, compared with net income of $1.4 million, or break-even, a year earlier.

Chief Executive Officer Mark Pincus gained more than half of the voting power over the company’s board, the company said in a separate filing. Pincus accumulated the voting rights as a result of sales or transfers of shares by other shareholders of the company’s Class B stock, the filing said.

Zynga expanded its board last week as it named former Yahoo! Inc. executive Ellen Siminoff its first female director.

The company expects to spend hundreds of millions of dollars acquiring game developers over the next three to five years, Pincus told Bloomberg in an interview earlier this year.

http://www.sfgate.com/business/bloomberg/article/Zynga-Plunge-Drags-Facebook-After-Gaming-Results-3735959.php