July 26, 2012
Zynga Sees Share Price Drop After Disappointing Earnings Results
Enid Burns for redOrbit.com — Your Universe Online
It seems 'Villes are not immune to the woes of the world economy. Zynga, the creator of online social games such as FarmVille and CityVille, reported a $108 million loss in net income for the first half of 2012. Shareholders began dumping stock even before the morning bell, in after-hours trading.
Zynga announced its earnings Wednesday afternoon and by mid day on Thursday stocks floated just above $3, and close to $2 lower than Wednesday's close price of $5.08. That decrease amounts to 39 percent, and may dip lower.
Zynga attributed changes made to Facebook, where Zynga gets a large portion of its audience, during a conference call to shareholders for some of the loss. "We saw declines in engagement and bookings for our Web games due in part to changes Facebook made to their platform," said Zynga CEO and founder Mark Pincus.
The earnings report highlighted a number of achievements Zynga accomplished during the period the earnings covered. "The company achieved some significant milestones in the quarter, including the launch of Bubble Safari, which is now the number one arcade game on Facebook, and the launch of The Ville, now the number two game behind Zynga Poker. Our advertising business continued to show strong growth with revenue up 170 percent year-over-year," said Pincus.
Over the first six months of 2012, Zynga has seen audience declines in some of its staple titles such as FarmVille and CityVille. However Zynga maintains that its user base is strong. "Our games reached record audiences, achieving over 300 million monthly active users," Pincus explained.
While Zynga has discussed some reluctance to concentrate on mobile, which it discussed last month at MobileBeat 2012, Pincus pointed to Zynga's achievements on the mobile platform in the company earnings. "We grew our mobile footprint five-fold in the year to 33 million daily active users making Zynga the largest mobile gaming network," said Pincus. "We also faced new short-term challenges which led to a sequential decline in bookings. Despite this, we're optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enable on the web."
Mobile is the platform where Zynga feels some pressure, but it will be necessary for the company to embrace the platform in order to succeed, according to some analysts. Other analysts suggest that Zynga profited from a fad in the past, but might not see such success in the future.
"There has been talk for a long time about social gaming being a fad, and we may be seeing some of those suspicions come to fruition," said Paul Verna, gaming analyst for eMarketer, in an article on USA Today. "Zynga had plenty of hit games and a good run, but that's not happening now."
Compared to a year ago, Zynga's losses are glaring. Last June Zynga reported net income amounting to $18 million. The $108 million loss is alarming to many investors. In March Zynga paid $200 million for the social game Draw Something, and might be banking on the property to turn things around.
Zynga held its IPO in December with an initial $10 share price. Since then investors have become skeptical. Facebook, where Zynga runs many of its games, held a disappointing IPO this spring and investors are bracing for Facebook's earnings.