) recently announced its fiscal third quarter 2012 preliminary
results, wherein the company projected a quarterly loss. Following
the announcement, shares of Zynga took a tumble, closing roughly
12.0% lower on Friday. The company is expected to report its third
quarter results on October 24, 2012.
For the third quarter, Zynga expects to generate revenues in the
range of $300 million to $305 million, which is higher than the
Zacks Consensus Estimate of $263 million. Bookings are expected to
be in the range of $250 million to $255 million.
Despite strong revenues, the company expects a loss in its third
quarter owing to soft demand and charges ($85 million and $95
million, respectively) related to the OMGPOP acquisition. The
company projects third quarter net loss of between $90 million and
$105 million. Non-GAAP net loss is expected to be in the range of
$2 million to $5 million. Zynga expects to report diluted loss per
share of between 12 cents and 14 cents. On a non-GAAP basis, Zynga
anticipates loss per share of 1 cent to a break even.
At the time of its second quarter earnings announcement in July,
Zynga had reduced its fiscal 2012 outlook. Now, concurrent with the
pre-announcement, the company again lowered its fiscal 2012
forecasts due to delay in game launches and lowered revenue
projections for popular web based games. Zynga reduced bookings
estimates from $1.150 billion-$1.225 billion to $1.085
billion-$1.100 billion. Moreover, the company lowered its projected
adjusted EBITDA from $180 million-$250 million to $147 million-$162
We believe that the higher spending on research &
development, technology and game development will affect the
company's profitability going forward. Further, Zynga's
) and significant cannibalization effect on its earlier games (as
users quickly move on to the latest title in the "Ville" series),
may hurt its growth going forward. We also note that barriers to
entry are low in the social gaming market, which will attract new
entrants, further increasing competition for Zynga over the long
However, 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
constant investments in the field of mobile gaming are expected to
act as a positive catalyst going forward. Moreover, Zynga's new
network "Zynga with Friends" is expected to reduce its reliance on
Facebook over the long term and help develop into a multiplatform
Thus, we remain Neutral over the long term (6-12 months).
Currently, Zynga has a Zacks #3 Rank, which implies a Hold rating
over the short term (1-3 months).
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