Zynga plummets on disappointing quarter

The online gaming company cuts its guidance for the full year, citing product delays and a challenging environment on Facebook, one of its key partners.

By Kim Peterson Jul 25, 2012 5:42PM
Updated 11:30 a.m. ET Thursday

(ZNGA) shares were getting smashed Thursday, falling about 37% to $3.21 after the company reported a weak quarter Wednesday.

The news doesn't bode well for Facebook (FB), which reports its earnings after the close. Facebook shares were down more than 5% to $27.74.

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Zynga is one of Facebook's largest sources of revenue. The online video game site missed analyst expectations on revenue and earnings. It also cut its guidance for the year, based on a delayed product rollout and weaker user numbers from Facebook.

Zynga swung to a loss of $22.8 million, or 3 cents a share, in the second quarter. A year earlier -- before it went public -- it made a $1.4 million profit. On an adjusted basis, however, the company reported a profit of a penny per share. Wall Street expected to see 5 cents a share.

Revenue rose 19% to $332 million, but analysts expected $342.8 million.

Even worse for investors was Zynga's significant cut to its full-year guidance. Now, the company says, it's earnings per share for the year will only likely fall between 4 cents and 9 cents. That's a dramatic decrease from the earlier range of 23 cents to 29 cents. The company said its bookings would be between $1.15 billion and $1.23 billion, down from its prior estimate of between $1.43 billion and $1.5 billion.

But Zynga's traffic numbers are looking good. The number of daily active users rose 23% from a year earlier to 59 million, while the number of monthly active users rose 34% to 306 million.

Zynga is a major business partner for Facebook. At the end of June, it owned seven of the top 10 games played on the social networking site, including "FarmVille," "CityVille" and "Zynga Poker."

The company said part of the reason it was lowering its full-year outlook was the "more challenging environment on the Facebook web platform."

Zynga shares have been a disaster since the company's December IPO, in which it priced its shares at $10 each. Shares climbed to $14 by March but have since tumbled to close Wednesday at $5.08.

Investors are skeptical about the company's future, particularly as people move to gaming on mobile phones and other devices. Zynga has had problems adapting to that transition.

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Jul 26, 2012 11:12AM
Perhaps it's because their games suck, their customer service sucks more, people playing zynga poker constantly get hacked a problem no other poker games on facebook seem to have.  Or the things you have spent your time earning *or buying if you're one of those people* just disapear. Zynga is bad, and they should feel bad.
Jul 26, 2012 11:24AM
How long until Facebook drop 40-75% more also?  Facebook is worth $7-$15 and not a penny more... likely less.  This crash will be fun!  Ever try to contact a REAL human being at Facebook?  Worthless!
Jul 26, 2012 12:49PM
I'm not that bullish on Facebook's long term profitability. As they try to come up with new ideas to monetize the site, they will drive users away. 

They already have the most annoying ads (old, weird tricks to a flat belly, etc.). I have a hard time seeing what else they can do that will not be intrusive. I'm bored with FB as is. If they add something new and annoying, I may never log in again.
Jul 26, 2012 11:43AM
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