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Zynga Continues to Lose Ground

Posted on Tuesday, Aug 12th 2014

Online games maker Zynga (Nasdaq: ZNGA) is still struggling to find its mojo. The recent result announcement did not bring any respite as the company’s stock tanked to a 52-week low figure driven by a failure to meet expectations. As the fad for its existing games wanes out, Zynga needs to come up with newer, addictive titles faster than it seems to be able to.

Zynga’s Financials
Zynga’s recently ended second quarter saw revenues fall 34% over the year to $153.2 million, significantly short of the market’s projections of $191million. The break even profit was, however, in line with the Street’s projections.

By segment, Zynga’s online game revenues fell 36% over the year to $131 million. FarmVille 2 and Zynga Poker were the leading games bringing in 32% and 24% revenues within the segment. Advertising revenues fell 19% to $22.3 million. Mobile remained a strong market bringing in 76% of ad bookings during the quarter.

Among operating metrics, average daily bookings per average daily active user improved 28% over the year to $0.07. Mobile bookings increased 78% over the year to 88 million, making it the first quarter ever when they recorded higher mobile bookings than desktop bookings. Web bookings fell 37% to 86 million. Facebook still does remain a strong contributor to bookings and accounts for 45% of the total bookings. During the quarter, total daily active users fell 26% to 29 million with mobile active users at 18.4 million. Total monthly active users declined 25% to 130 million with mobile accounting for 75.8 million of this base.

The miss in the outlook was also substantial. For the current quarter, Zynga projected revenues of $160 million-$170 million compared with the Street’s outlook of $214.7 million. Earnings of $0.00-$0.01 for the quarter compared with market projections of a break-even quarter. Zynga expects to end the year with bookings of $695 million-$725 million, slashing their previous projections of $770 million-$810 million. The earnings for the year are expected to be in the range of a loss of a penny per share to a break-even year. The Street was projecting bookings of $802 million and earnings of $0.02 per share.

Zynga’s Game Delays
Zynga’s disappointing outlook was driven by the delay in their game releases. During the quarter, they held back the global launches of an upgraded Zynga poker and Words with Friends as they needed more time to test the games out. They continued to rely on FarmVille and released FarmVille 2: Country Escape in 16 languages across the iOS and Android platforms to rave reviews. Other game title releases during the quarter included Duck Dynasty Slots on iOS and Google Play and the expansion of CSR Classics and Clumsy Ninja to Google Play.

Zynga plans to grow their empire within the Sports segment and recently launched Zynga Sports 365. This segment will be dedicated to major league sports such as golf and football. They entered into an agreement with Tiger Woods and the National Football League as part of this effort. Zynga plans to leverage these agreements in the production of their new mobile football game NFL Showdown and has a Tiger Woods golf game planned for release next year.

Additionally, they have also entered into a licensing agreement with Warner Brothers to develop a mobile game based on their Looney Tunes series. The game is expected to be released for the holiday season.

Zynga does need to pick up its game soon to keep the markets happy. Their stock is trading at $2.85 with a market capitalization of $2.48 billion. It touched a high of $5.89 earlier this year but tumbled to a 52-week low of $2.70 soon after the result announcement.

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