Zynga Inc. (
reported second-quarter loss (including stock-based compensation
expenses) of 2 cents per share, a penny narrower than the Zacks
Consensus Estimate of a loss of 3 cents.
However, share price fell 7.2% to $2.71 in after-hours trading,
after management revised down its full-year guidance and postponed
the launch of Zynga Poker and the new Words with Friends.
Zynga's revenues plunged 33.6% from the year-ago quarter to $153.2
million. However, revenues missed the Zacks Consensus Estimate of
$136.0 million. The U.S. contributed 60% of the revenues, while the
rest came from international markets.
Zynga's bookings decreased 6.7% from the year-ago quarter to $175.1
million, in line with the lower end of the guided range of
$175-$195 million. Average daily bookings per average Daily active
user DAU (ABPU) increased 28% year over year to approximately 7
cents in the reported quarter.
For the first time in Zynga's history, mobile bookings surpassed
web bookings. Mobile bookings were up 76% year over year to 88
million. Web bookings were down 37% on a year-over-year basis to 86
million. Facebook (
) related bookings accounted for 45% of the total bookings in the
Online game revenues (85.5% of revenues) declined 35.6% year over
year to $131 million. FarmVille 2 and Zynga Poker accounted for a
respective of 32% and 24% of online game revenues in the quarter.
Advertising revenues (14.5% of revenues) declined 18.8% from the
year-ago quarter to $22.3 million. Mobile represented 76% of ad
bookings during the quarter. The company renewed and expanded
partnerships with NBC, Fox, Progressive, Clorox and others.
Daily Active Users (DAU) was down to 29 million compared with 39
million in the year-ago quarter. Monthly Active Users (MAU) was 130
million compared with 187 million in the year-ago quarter.
Web DAUs and mobile DAUs were 10.2 million and 18.4 million in the
reported quarter, respectively. Web MAUs and mobile MAUs, on the
other hand, were 53.8 million and 75.8 million, respectively.
During the quarter, the company launched FarmVille 2: Country
Escape in 16 languages on Apple's (
) iOS and Google's (
) Android platforms. At launch itself, the game received Apple App
Store's "Editor Choice" award featuring in 155 different nations
and Google Play top-tier featuring in 71 nations.
Zynga also launched Duck Dynasty Slots on iPhone, iPad and Google
Play in June. NaturalMotion (acquired by Zynga in the first
quarter) expanded CSR Classics and Clumsy Ninja to additional
platforms by launching on Google Play. It also released Morpheme 6
and Morpheme 6 with Euphoria as the next generation of its
innovative animation system.
Zynga announced that it is entering the Sports category under a new
brand called Zynga Sports 365. The company has signed license deals
with golf icon Tiger Woods and National Football League. Zynga is
developing a mobile football game called NFL Showdown. The company
will launch a Tiger Woods golf game in 2015.
Zynga recently entered into multi-year license agreement with
Warner Bros. Interactive Entertainment to develop Looney Tunes
mobile game, which it expects to release before the holiday season.
Total cost & expenses decreased 16% year over year to $219.4
million. Although sales & marketing increased 33.5% year over
year, it was fully offset by 24.6% decline in research &
development and 26.3% decrease in general & administrative
expense. Headcount and technology spending also declined in the
Adjusted EBITDA was $14.5 million up from $8.3 million reported in
the year-ago quarter. Operating loss was $66.2 million compared
with $30.4 million in the year-ago quarter. Net loss was $18.3
million or 2 cents compared with a loss of $31.5 million or 4 cents
in the year-ago quarter.
Balance Sheet & Cash Flow
At the end of the second quarter, Zynga had cash and cash
equivalents (including marketable securities) of $727.2 million
compared with $1.14 billion in the previous quarter. Cash flow from
operations was $17.8 million, while free cash flow was $14 million
in the last quarter.
For the third quarter of 2014, Zynga expects to report in the range
of breakeven to earnings of 1 cent per share. Currently, the Zacks
Consensus Estimate is pegged at a loss of 3 cents per share. The
company expects to generate revenues between $160 and $170 million.
Bookings for the third quarter are projected in the range of $165
to $175 million. Moreover, Zynga expects adjusted EBITDA in the
range of $0 to $5 million.
For full-year 2014, Zynga forecasts bookings in the range of $695
to $725 million (down from $770 to $810 million). Adjusted EBITDA
is expected in the range of $40 to $60 million (down from $70.0 to
$100.0 million). Non-GAAP earnings are expected in the range of
negative 1 cent to breakeven for the full year.
We believe that Zynga has significant growth opportunities from
mobile gaming, as reflected by its expanding mobile bookings. The
company's decision to enter the sports and runner category will
expand its user base in the long run.
However, postponement of Zynga Poker and Words with Friends will
remain an overhang on the stock price in the near term. Further,
enhanced investments will negatively impact profitability in the
rest of 2014.
Nevertheless, we believe that Zynga is well positioned to grow in
2015 due its strong product pipeline compared to other mobile game
developers like King Digital and Glu Mobile. Zynga's policy of
diversifying its product portfolio through NFL Showdown and
in-development golf game is positive over the long term.
Zynga's decision to move resources from slow-growing social-games
to the popular sports category is prudent. We believe that there is
significant pent-up demand for good quality sports game on mobile,
from which Zynga will benefit in the long run.
Currently, Zynga sports a Zacks Rank #1 (Strong Buy).
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