GamesBeat

Zynga losses aren’t bad, but the decline in social gamers continues

Above: don mattrick and mark pincus

Image Credit: Zynga

Social gaming giant Zynga, the maker of games like FarmVille, reported better-than-expected earnings and revenues today.

The company said its GAAP (generally accepted accounting practices)  et loss for the third quarter ended Sept. 30 was $68,000, or break-even on a per share basis, while its non-GAAP net loss was 2 cents a share. Revenue was $203 million, down 36 percent from a year ago. Meanwhile, bookings were $152 million, down 40 percent from a year ago. Analysts expected the social game company to report a loss of 4 cents a share on revenue of $143 million. Zynga itself expected revenue of $175 million to $200 million and a net loss of $14 million to $43 million. A year ago, Zynga lost 7 cents a share on revenue of $317 million.

Clive Downie left DeNA West to become COO at Zynga.

Above: Clive Downie left DeNA West to become COO at Zynga.

Image Credit: Zynga

The good news: Zynga didn’t announce any layoffs, as some had expected. Zynga also hired a new chief operating officer, Clive Downie, the former CEO of mobile gaming firm DeNA West, a division of Japan’s DeNA.

In after-hours trading, Zynga’s stock is up 15 percent to $4.08 a share.

Don Mattrick, who left Microsoft’s top game position to become CEO of Zynga this summer, said in a statement, “I am pleased with our Q3 performance which exceeded our guidance both in terms of bookings and adjusted EBITDA [earnings before income taxes, depreciation and amortization]. We are encouraged to see sightlines to growth and expect to be profitable for the full year on an adjusted EBITDA basis.

“Our teams are working hard to compete more aggressively on the web, move to mobile and develop new hits, and I am happy with the early progress we have made. We believe our top franchises, Zynga Poker, FarmVille and Words With Friends, can be evergreen in terms of consumer interest, and we are focused on growing these franchises in fiscal year 2014. I am confident that Zynga is rewiring itself in a meaningful way that will strengthen the core of our business and put us back on track to achieve significant long term growth and profits.”

Zynga said it has three of the top 10 games on Facebook, based on daily active users: FarmVille 2, Zynga Poker, and Words With Friends.

Sterne Agee analyst Arvind Bhatia said in a note before the earnings that he expected Zynga’s financial performance to be within management’s conservative guidance, but he believed Zynga would likely revise its fourth-quarter and 2014 estimates downward as quarterly traffic continued to decline.

Daily active users feel from 60 million the third quarter a year ago to 30 million now, down 49 percent. DAUs were down 23 percent from 39 million in the second quarter. Web DAUs were 16 million, while mobile DAUs were 14 million. Monthly active users fell from 311 million a year ago to 133 million in the third quarter, down 57 percent. They were down 29 percent from 187 million in the second quarter.

Zynga got a little more money per user. Average daily bookings per average daily active user were up from 47 cents a year ago to 55 cents. Monthly unique payers were 1.6 million, down from 3 million a year ago.

Zynga took a restructuring charge of $7 million related to the closure of offices. Ad revenue was $28 million, down 9 percent from a year ago.

In the second quarter, Zynga’s bookings for web games were down 44 percent compared to a year ago, exposing a surprising weakness in games like Zynga Poker. Zynga is no longer the dominant company in social casino games, as Caesar Interactive has taken that title with games such as Slotmania.

Perhaps as a consequence, Mattrick announced last quarter that Zynga would no longer apply for a license in the state of Nevada to do real-money online gambling games in the U.S. Zynga was refocusing resources on Zynga Poker, a non-gambling game, and other virtual goods titles.

In late July, Mattrick laid out his 90-day plan to take the reins at Zynga. He has been inspecting every aspect of the company’s business, and has warned that results will be volatile for some time.

For the fourth quarter, Zynga projects revenue of $175 million to $185 million. The net loss is expected to be $21 million to $31 million. Net loss per share is expected to be cents a share to 4 cents a share. Non-GAAP earnings per share is expected to be a loss of 4 cents to 5 cents.

SoftBank and GungHo Entertainment recently bought a 51 percent stake in mobile-only game studio Supercell, the publisher of Hay Day and Clash of Clans, for $1.5 billion. With a $3 billion valuation, Supercell has just 500 employees. Zynga, on the other hand, has around 2,000 employees and its valuation was $2.85 billion before the market closed today.

More information:

Zynga Inc. is the world's largest social game developer with more than 232 million monthly active users playing their games which include CityVille, FarmVille, FrontierVille, Words With Friends, Mafia Wars, Zynga Poker, Cafe World, and... read more »

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