Zynga stock craters, dropping 18% after Q2 results

Zynga's controversial decision to not pursue real money gaming in the U.S. has upset investors

Shares of Zynga crashed in early trading on Friday, despite posting better than expected second quarter earnings on Thursday.

The stock is currently down 18.21%, or 64 cents, to $2.86 a share.

"2Q results exceeded management’s recently lowered guidance but 3Q guidance was significantly weaker than expected as ZNGA continues to lose share on allthree platforms: Facebook, iOS and Android. Its challenge is to offset this pressurein the near to intermediate term by producing hits," Sterne Agree analyst Arvind Bhatia said.

"Meanwhile, in a move that willlikely disappoint some of the bulls, management has chosen to move away from U.S. Real Money Gaming."

"The company has eliminated much of the potential upside for the stock, while weakness in Poker could indicate that once 'untouchable' pillars of the company are weakening," said Sean McGowen of Needham & Company.

Zynga reported $231 million in revenue for the second quarter of 2013, a decrease of 31% compared to the second quarter of 2012 and a decrease of 12% compared to the first quarter of 2013. The company reported non-GAAP earning per share loss of 1 cent.

Analysts had been expecting to see a loss of 4 cents per share on revenue of $185.4 million. In its first quarter earnings report, Zynga projected revenue in the range of $225 million to $235 million for Q2 2013. It was expecting a net loss is in the range of $36.5 million to $26.5 million, while non-GAAP EPS was 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.

Bookings for the quarter were $188 million, a decrease of 38% compared to the second quarter of 2012 and a decrease of 18% compared to the first quarter of 2013.

Net loss was $16 million for the second quarter of 2013 compared to a net loss of $23 million for the second quarter of 2012

"The next few years will be a time of phenomenal growth in our space and Zynga has incredible assets to take advantage of the market opportunity," Don Mattrick, Zynga's newly appointed CEO, said in a statement.

"To do that, we need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company. We have a lot of hard work in front of us and as we reset, we expect to see more volatility in our business than we would like over the next two to four quarters. I'm privileged to lead Zynga and I look forward to spending more time with our players, employees and shareholders."

And apparently that means not persuing real money gaming, which many saw as the best way for the company to bolster its revenue in the future.

"While the Company continues to evaluate its real money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real money gaming in the United States," the company wrote.

Online game revenue was $203 million, a decrease of 30% compared to the second quarter of 2012 and a decrease of 11% compared to the first quarter of 2013. Advertising revenue was $27 million, a decrease of 33% compared to the second quarter of 2012 and a decrease of 19% compared to the first quarter of 2013.

Zynga's daily active users  decreaed 45% year-to-year, from 72 million to 39 million. They were down 24% quarter-to-quarter, from 52 million in Q1. Web DAUs and Mobile DAUs were 23 million and 16 million in the second quarter of 2013, respectively.

Monthly active users decreased as well, going down 39%, from 306 in the second quarter of 2012 to 187 million this quarter. They also decreased 26% from 253 million in Q1. Web MAUs and Mobile MAUs were 129 million and 57 million in the second quarter of 2013, respectively.

Zynga is projecting revenue for Q3 to be in the range of $175 million to $200 million, with a projected net loss of between $43 and $14 million.

The company is projecting EPS to be in the range of ($0.05) to ($0.02), based on a share count of approximately 803 million to 813 million shares.

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