Zynga stock jumps 15% on better-than-expected Q3 result

Mobile gaming company also announced that it launching real money gambling games in UK

Zynga’s stock jumped 15% in early trading Thursday, after posting quarterly results that beat its lowered outlook from earlier this month and announcing that it was finally getting into real money casino gaming.

The company’s shares were up 15.1% in after-hours trading Wednesday, after falling 3.23% during regular trading to an all time low of $2.13 a share. After Zynga lowered its outlook for the year on October 4, shares opened the next morning down more than 18% to $2.30. The stock has fallen nearly every day since.

Zynga's stock is now trading at $2.45, up 15.16%.

Third quarter results

In its third quarter results, Zynga reported revenue of $317, higher than its expected range of $300 million to $305 million. Revenue was up 3% year-to-year. Bookings came in high, at $256 million, slightly better than the range of $250 million to $255 million that Zynga had been expecting. Bookings were down 11% from the previous year.

The company also predicted that it would be reporting a net loss of between $90 million and $105 million. The actual numbers were a net loss of $52 million, compared to net income a year ago of $12.5 million.

Earnings per share were a loss of 7 cents, compared with break-even results a year ago. Non-GAAP earnings per share were 0 cents, down from a profit of 4 cents a share a year ago. 

Analysts had been expecting a loss of 1 cent per share on revenue of $256.4 million for the quarter, according to Thomson Reuters.

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

Earlier this month, Zynga had warned that due to “weakness of certain games in our web ‘invest and express’ category” as well as “reduced expectations for certain web games including The Ville, and delays in launching several new games,” that it was reducing expectations for the quarter and for its 2012 outlook.

Zynga said that it projected full 2012 booking to be in the range of $1.085 billion to $1.100 billion, down from its previous expectations of between $1.150 billion to $1.225 billion. Adjusted EBITDA was projected to be in the range of $147 million to $162 million, down from $180 million to $250 million.

"The third quarter of 2012 continued to be challenging and, while many of our games performed to plan, as a whole we did not execute to our satisfaction” Pincus said in a statement at the time.  "We're addressing these near-term challenges by implementing targeted cost reductions in the fourth quarter and rationalizing our product R&D pipeline to reflect our strategic priorities.”

This was the second time Zynga cut its full year outlook in only a few months. In July, Zynga lowered its booking estimates after a disappointing second quarter, from an estimation of $1.43 billion to $1.5 billion.

In its earnings report Wednesday, Zynga once again revised its 2012 outlook. The outlook is up slightly, but still down from where it was previously. Zynga now expects 2012 bookings to be slightly higher, in the range of $1.09 billion to $1.1 billion. Adjusted EBITD is projected to be in the range of $152 million to $162 million.

Zynga also announced in the results that its Board of Directors had authorized a share repurchase program, which would authorized Zynga  to repurchase up to $200 million of its outstanding Class A common stock.

Real money games
 
Zynga also announced Wednesday that it was partnering with bwin.party to offer real money online Poker and Casino games in the UK market. Zynga's UK-based RMG service and bwin.party will launch RMG products including Poker and a full suite of 180 Casino games in the first half of 2013, which include table games such as slots, roulette and blackjack.

Zynga Poker was the company’s very first game, launched in July 2007, and has remained extremely popular, even as Zynga’s Ville games have lost some of their edge.

Gambling was becoming increasingly important to Zynga, as its once mighty relationship with Facebook began to erode. Zynga’s casual games thrived on Facebook, until the social network began emphasizing new games in its news feed and notifications so that people have a greater level of discovery.
To balance the loses it was seeing, it was reported in July that Zynga would begin to allow real-money gambling in markets outside the United States by the beginning of 2013.

“What we’ve said, and what we have to announce today, is that we have our first products in development and that we intend to release them in markets that are regulated and open, subject to our getting licensing,” Pincus said on an analyst conference call discussing Zynga’s second quarter earnings.

“The US is obviously an attractive market, but it’s not an open, regulated environment today.”

Despite recently the gaming company recently losing the person in charge of such an integral part of its future, the market seems encouraged by Zynga's new source of revenue.

(Image source: https://business.financialpost.com)