Zynga getting punished for slow mobile transition

Steven Loeb · April 25, 2013 · Short URL: https://vator.tv/n/2f0a

Stock drops 6% amid fears it won't be able to compete

Zynga shares are down another 6% in regular trading Thursday, not as bad as the more than 10% it was down in after-hours trading late Wednesday, despite posting better-than-expected first-quarter results after the close on Wednesday. 

The stock is currently trading at $3.14 a share, down 6.24%. It gained 5.31% to $3.35 a share in regular trading yesterday and is down over 3% for the week.

The reason for the concern among investors seems to be because of the company's slow transition into a company that is fully focused on mobile gaming.

"Zynga keeps hinting at meaningful changes to come ... profitably, on mobile, but we will need to see it before we can give them credit for it," Macquarie Equities Research analyst Ben Schachter said, according to Reuters.

If the company cannot make the transition quickly, analysts seem to be saying, it will be left behind.

"Zynga is unlikely to ever dominate the mobile gaming market in the same way that it has the web-based gaming market for many years," says Wedbush Securities analyst Michael Pachter.

There is also concern that the company's attempt to bolster revenue by entering into real-money gaming will not help it in the short term.

"Zynga must overcome significant competitive and legislative issues, among others. The near-term impact of real money gaming should be limited," Wedbush's Pachter said.

The company's quarterly results were a mixed bag. While Zynga beat Wall Street expectations, its revenue and bookings were down year-to-year, as were both daily and monthly active users.

Zynga reported GAAP revenue of $264 million, down 18% from $320 million at the same time last year. Bookings were $230 million, down 30% from $329 million in Q1 2012. The company also reported non-GAAP earning per share came of $0.01.

The company experienced a net income of $4 million for the quarter, compared to a loss of $85 million in the first quarter last year. 

Analysts had been expecting to see a loss of 4 cents per share on revenue of $209 million. In its fourth quarter earnings report, Zynga had projected revenue in the range of $255 to $265 for the first quarter of 2013, with a net loss in the range of $32 million to $12 million. Bookings were projected to be between $200 and $210 million.

Zynga's daily active users decreased 21% year-to-year, from 65 million to 52 million. DAUs were down 8% from 56 million in the fourth quarter of 2012.

Monthly active users were down 13% year-to-year, from 291 million to 253 million. MAUs were down 15% quarter-to quarter, from 298 million in Q4 2012.

Zynga is expecting for revenue in the range of $225 million to $235 million for Q2 2013. It is expecting a net loss is in the range of $36.5 million to $26.5 million, while non-GAAP EPS is projected to be in the range of ($0.04) to ($0.03), based on a share count of approximately 785 million to 795 million shares.

(Image source: https://iwritealot.com)

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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users.  Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist.  The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel.  Zynga is headquartered at the Chip Factory in San Francisco.  For more information, please visit www.zynga.com.