Zynga Posts Narrower-Than-Expected Loss - Analyst Blog

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Zynga Inc. ( ZNGA ) reported second-quarter loss (including stock-based compensation expenses) of 4 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 7 cents.

On a non-GAAP basis, the company reported a loss of 1 cent compared to year-ago quarter's earnings of 1 cent per share.

Quarter Details

Zynga's bookings decreased 37.8% from the year-ago quarter to $187.6 million but comfortably beat the Zacks Consensus Estimate of $184.0 million. Zynga's total revenue came in at $230.7 million, down 30.6% from the year-ago quarter.

Advertising revenues (12.0% of total revenue) were down 33.1% from the year-ago quarter to $27.4 million.

Online game revenues, which comprised 88.0% of the total revenue, plummeted 30.3% year over year to $203.3 million. During the quarter, Zynga acquired Spooky Cool Labs.

Zynga's mobile bookings were down 12.0% from the year-ago quarter primarily due to the tepid performance of the new mobile games. On a quarter-over-quarter basis, mobile bookings were up by 1.0%. Facebook ( FB ) related bookings comprised 68.0% of total bookings, down from 76% in the previous quarter.

Daily Active Users (DAU) were down 45.0% year over year and 24% sequentially to 39 million. Monthly Active Users (MAU) also declined 39.0% year over year and 26.0% quarter over quarter to 187 million.

During the quarter, Zynga launched six new games (five mobile games and one for web-based platform) among which two mobile games received Apple 's ( AAPL ) "Editor's Choice" award.

The company undertook several cost-cutting initiatives, which included spending cuts in technology outside services, labor costs and marketing. These resulted in a 29.0% decrease in costs to $261.1 million. Sequentially, costs were down a modest 2.8%.

Adjusted EBITDA was $8.3 million in the quarter, down from $65.3 million reported in the year-ago quarter. Zynga reported non-GAAP net loss of $6.1 million in the quarter compared to net income of $4.6 million a year ago. However, including stock-based compensation of $25.9 million and its related tax impacts, net loss came in at $31.5 million.

At the end of the second quarter, Zynga had cash and cash equivalents (including marketable securities) of $1.12 billion compared with $1.27 billion in the previous quarter. Zynga used $645k cash for operating activities.

Outlook

For the third quarter of 2013, Zynga expects non-GAAP loss per share in the range of 9 cents to 5 cents. The company expects to generate revenues between $175 million and $200 million.

Bookings for the third quarter are projected in the range of $125 million-$150 million, down sequentially, primarily due to sluggish growth expectations for the new mobile games and waning popularity of its older games.

Moreover, Zynga expects adjusted EBITDA in the range of ($30) million to breakeven in the third quarter. For fiscal 2013, Zynga expects adjusted EBITDA margin to be between 0% and 5% (down from previous estimate of 0.0%-10.0%). Capital expenditure is expected to be $25 million in 2013 (down from the previous estimate of $25.0 million).

Recommendation

We believe that Zynga is well positioned to grow in the near term based on its innovative product pipeline and its dominant position in the social and mobile gaming sector. The company's expansion in the advertising space is another positive for the company.

Zynga's initiatives to expand in the real money casino and poker games across different platforms should act in its favor. However, we consider the competition from International Game Technology ( IGT ) to be a possible headwind.

Moreover, shareholder-friendly initiatives such as share buyback and cost reduction programs will drive the stock in the near term.

However, we also note that barriers to entry are low in the social gaming market and this will attract new entrants, thereby increasing competition for Zynga over the long term.

Currently, Zynga has a Zacks Rank #1 (Strong Buy).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AAPL , FB , IGT , ZNGA

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