Despite Q3 losses, Zynga tops projections

The online gaming company also announces a gambling venture with a UK firm.

By Bruce Kennedy Oct 25, 2012 8:56AM

Jacqueline Veissid Photodisc Getty ImagesZynga (ZNGA) seemed destined for "game over" status, ahead of its third-quarter earnings report on Wednesday. But the struggling online gaming company appears to have earned a bonus "extra life" instead, as it beat Wall Street's disastrous predictions. It also announced a new online gambling venture.

 

After the markets closed Wednesday, Zynga announced a loss of $52.7 million, or 7 cents per share. That loss included a charge in connection with the company's purchase of the mobile game company OMGPop earlier this year.

 

But Zynga's third quarter revenue was a stronger-than-expected $316.6 million, up 3% from the same time period last year. The company's adjusted earnings for the third quarter broke even on a per share basis, matching analysts' expectations, compared to 4 cents a year earlier. The company also announced a $200 million share buy-back program.

 

Shares of Zynga ended the regular trading day on Wednesday down 3.23% at $2.13. But they soared in after-hours trading and were up 14% in premarket trading to $2.43.

 

"While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming," said Mark Pincus, Zynga CEO and founder, in an earnings press statement. "We're implementing a number of steps to drive long-term growth and profitability."

 

In its post-earnings conference call, Zynga also announced its expansion into online gambling -- in a partnership with Europe's Bwin.Party, a real money gaming (RMG) operator. While RMG is illegal in the U.S., the partnership will reportedly launch U.K.-based poker and other casino games sometime in the first half of 2013.

 

"Bringing together Zynga's expertise in social gaming with the top international real money gaming operator is the best way to create the highest quality gaming experiences for our players in the UK," said Zynga executive vice president Barry Cottle in a separate press statement. "Partnering with an established leader like bwin.party is a strategic and prudent way for us to enter a key RMG market while giving local players the real money games they've been asking us for."

 

The gamble on gambling might help Zynga out of its current financial crunch.

 

On Tuesday, Pincus sent out a memo to employees, saying the company would cut its full time workforce by 5%. Zynga plans to reduce staff in its Austin, Texas studio, close its Boston operations and consider closures at its Japanese and U.K. studios. It is also "sunsetting" 13 older games and reducing investment in one of its newest games, "The Ville," which, according AppData, has been losing users by the hundreds of thousands over the past several weeks. Pincus also called for an "all-hands" staff meeting next week.

 

"These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile," Pincus's memo continued.

 

But on Wednesday, Pincus pointed to the successful third quarter launches of Zynga's "FarmVille 2" and "ChefVille" games as examples of how, "when we develop great games, our large player audience engages. It's more clear than ever that along with search, shop, and share, play is a fundamental pillar of the Internet, and Zynga continues to be the leader."

 

Zynga went public last December at $10 a share but has lost over 75% of its value since the IPO.

 

Tuesday's better-than-expected earnings report by Facebook (FB) also seemed to help Zynga's stock. Zynga has some of the most popular games on Facebook, and while sales from those games declined, Zynga made up 7% of Facebook's total revenue for the third quarter of 2012. Nevertheless, Facebook CEO Mark Zuckerberg essentially threw Zinga under the bus during his Tuesday earnings call -- by suggesting Zynga might be bad for his business.


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