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Zynga Q3 sales beat estimates, goes all-in with bwin.party

Published: 13:29 25 Oct 2012 BST

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Social games maker Zynga (NASDAQ:ZNGA) late Wednesday raised the lower end of its 2012 outlook as third-quarter revenue beat Wall Street expectations.

The maker of Facebook (NASDAQ:FB) hit "Farmville" inked a new deal with Europe's bwin.party to offer online real-money gambling in the U.K. to a $200 million share buyback plan that would lift its share price.

The company also projected that its cost reduction plan, initiated this week, would yield $15 million to $20 million in pretax savings. Zynga cut five per cent of its workforce and the closure of a number of its global games studios, news which was revealed at the same time as Apple's (NASDAQ:AAPL) "iPad mini" press event on Tuesday.

"While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming," said Zynga CEO and founder Mark Pincus.

"We're implementing a number of steps to drive long-term growth and profitability. The successful launches of FarmVille 2 and ChefVille in the third quarter demonstrate that 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." 

In the third quarter, revenue rose to $317 million, an increase of 3 per cent from a year ago. Analysts predicted revenue of $291.5 million, according to data compiled by Bloomberg. Before items, the company broke even on a per-share basis in the third quarter, compared with projections for a 1 cent loss.

Zynga also revised its full-year adjusted earnings to between $152 million and $162 million, up from $147 million and $162 million.

Zynga said daily active users increased to 60 million from 54 million a year earlier, up 10 per cent.

Monthly active users increased from 227 million a year ago to 311 million and unique users also rose, from 152 million last year to 177 million in the latest period.

The company also reported findings from AppData, which show Zynga held five of the top 10 games on Facebook, including Words With Friends, Zynga Poker, Bubble Safari, ChefVille, and FarmVille 2. Almost a year ago, Words With Friends made headlines as Hollywood star Alec Baldwin was removed from an American Airlines flight for refusing to stop playing the game as his flight was preparing to take off.

In a conference call, Zynga's Pincus repeatedly called his company's recent performance "disappointing" as he pledged to turn his company around by churning out new hits for mobile devices.

"The last couple of months have obviously been challenging for us," said Pincus, who blamed delays on the company's game development pipeline. 

"We didn't create enough new heat for our players. But we know when we launch great games our players engage."

Zynga has been heavily reliant on sales from FarmVille and CityVille which were one-time cash cows but are both fading fast.

CFO David Wehner blamed those two games as reasons why Zynga recorded bookings of $256 million from July through September, the worst quarterly performance since late 2010.

Average daily bookings per average daily active user - a metric that roughly measures how much revenue the company gets from each gamer - dropped sharply to $0.047, a decrease of 11 per cent.

Pincus and Wehner also said the company would invest more heavily in mid-core games which require more development resources but are more immersive. Zynga now operates on a publishing schedule of two new Web games and four new mobile games per quarter.

Zynga had cut its full-year earnings forecast earlier in October when it warned investors its top line would be affected by poor performance in core money-making Internet games.

Zynga's stock closed at $2.129 Wednesday on the Nasdaq.

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