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Zynga missed analysts’ expectations for revenues and profit in the second quarter as new mobile launches failed to ignite a turnaround — but some big-name sports help is on the way.
But the mobile and social game publisher said that it hit the low end of its own guidance for bookings. Zynga CEO Don Mattrick said the company is investing for the long term, including new investments in some ambitious sports titles that include the NFL and the world’s best-known professional golfer.
Revenue was $153 million, down 34 percent. Actual net loss was $63 million, compared to a net loss of $16 million the year before. On a non-GAAP basis, the loss was $3 million, or 0 cents per share, compared to a loss of $6 million, or 1 cent a share, a year earlier. Analysts had expected non-GAAP break-even results on revenues of $191 million.
But Wall Street will likely punish the company, as Mattrick has lowered revenue expectations for the full year. He said the company is delaying the launch of some games from both Zynga and its Natural Motion subsidiary. In after-hours trading, Zynga’s stock price is down 7 percent to $2.69 a share.
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Zynga is investing in two new sports categories, including an NFL-licensed mobile game called NFL Showdown and a golf game based on a deal with Tiger Woods. Electronic Arts dropped Woods after a scandalous fallout with his wife, but he is attempting to rehabilitate his golf career (with mixed results), and Zynga sees value in the license.
Meanwhile, Zynga has also licensed Looney Tunes characters from Warner Bros. to make endless-runner mobile games.
Mattrick is biting the bullet, giving investors bad news but saying that he is investing for the good of the company in new games and franchises, which is the only thing that will help Zynga as it makes the shift from social network games to mobile games. Zynga was able to go public at a $9 billion value on the strength of games like Zynga Poker and FarmVille on Facebook. But it had a rocky transition to mobile, enabling rivals like King (whose Candy Crush Saga is a megahit) and Supercell (the maker of popular games Hay Day and Clash of Clans) to grab the advantage on mobile devices.
“While our quarterly financial results were in line with our guidance range, we aspire to do better and improve execution across our business,” Mattrick said in a statement. “Inside Zynga, we recognize that our products have the potential to live for multiple years and with nurturing, refinement and investment, they can grow and scale. We are purposefully competing, and while we would like to be further along, we believe we are making the right decisions to grow our business and unlock long-term shareholder value.”
He added, “We continue to make significant investments in the highest potential areas of our future pipeline. By Q4 of this year, approximately half of our game-related research and development will be allocated to new and recently launched games — this represents about a 45 percent increase year over year. We currently have capabilities and brands in content genres with Farm, Words, Casino, Racing and People
and we are further diversifying our product portfolio in order to reach more consumers and widen our demographic across more entertainment genres.”
Explaining the second-quarter shortfall, Zynga said it is moving through its multiyear transformation and making decisions to benefit long-term growth. Mattrick has recruited a team of new leaders, changed the rhythm of the business, and focused teams on quality and putting consumers first.
Zynga’s bookings of $175 million were up 9 percent from the previous quarter. The company said mobile bookings and audience are growing and that mobile bookings have surpassed web bookings for the first time. The company saw 22 percent growth from the previous quarter in mobile monthly active users and 34 percent growth from a year ago.
The company said that the second quarter was a launch period and it expected some volatility as it assessed its product readiness. Zynga decided to shift several titles and planned game features to the second half of 2014 and into 2015 in order to have a better chance for meeting engagement and quality goals. That shift has hurt expectations for the full year.
Zynga now expects annual bookings to be in the range of $695 million to $725 million and adjusted EBITDA to be in the range of $40 million to $60 million. Previously, Zynga expected $770 million to $810 million in bookings and adjusted EBITDA to be $70 million to $80 million. Non-GAAP net income is expected to be breakeven to a loss of 1 cent a share.
In the third calendar quarter, Zynga expects a net loss of $52 million to $57 million, or 6 cents a share. Revenue is expected to be $160 million to $170 million. Bookings are expected to be $165 million to $175 million.
Zynga said that by the fourth quarter, over 50 percent of game-related research and development will be allocated to creating new experiences, a 46 percent increase from a year earlier.
Zynga has brands and capabilities in farm, words, casino, racing and people categories and is further diversifying its product portfolio with two new categories — sports and endless runner — in order to reach more consumers and widen its reach.
As for sports, Zynga sees that as one of the largest, evergreen categories in entertainment, and it believes it is underindexed on mobile. Zynga’s football brand will be called Zynga Sports 365, akin to the EA Sports brand at Electronic Arts. Zynga’s new games will be the NFL Showdown and Tiger Woods golf game, being built by Zynga’s new Orlando, Fla.-based studio.
The new studio has gaming industry veterans with a rich pedigree in mainstream sports and entertainment franchises. They will focus on making true-to-life games with the visual fidelity that gamers expect. The Tiger Woods game will come out in 2015.
Thanks to its IPO, Zynga has a cash cushion to invest. The company has more than $1.15 billion in cash.
Zynga said its monthly active users (MAUs) in the second quarter of 2014 were 130 million, compared to 187 million in the second quarter of 2013. On a consecutive quarter basis, MAUs were up 6 percent from 123 million in the first quarter of 2014.
And monthly unique users (MUUs) in the second quarter of 2014 were 89 million, compared to 123 million in the second quarter of 2013. On a consecutive quarter basis, MUUs were up 2 percent from 86 million in the first quarter of 2014.
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