Zynga Shares Down After Reporting Mixed Q1 Results
Zynga shares closed 6.5 percent lower Thursday at $3.13, after the company reported mixed results for Q1 ended March 31 and gave a weaker-than-expected Q2 forecast. Revenue fell 18 percent year-over-year to $263.6 million. But it swung to a $4.1 million profit from a loss of $85.4 million in Q1 last year. Zynga was “encouraged by” the “progress” in Q1, CEO Mark Pincus said on an earnings call Wednesday.
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The top revenue generating games for Zynga in Q1 were Zynga Poker, which made up 22 percent of online game revenue, and FarmVille, with 16 percent, said Chief Financial Officer Mark Vranesh. No other title contributed more than 10 percent in Q1, he said.
Zynga expects “the road will be bumpy,” said Vranesh. But Zynga is “confident” it will “exit 2013 in a better position,” he said.
The company launched its first real money gaming (RMG) titles in the U.K. -- ZyngaPlusPoker and ZyngaPlusCasino -- in April, via the deal with bwin.party that was announced last year (CED Oct 26 p11). The offerings are “the first step toward realizing Zynga’s long-term vision of bringing players the next generation of real money games on multiple platforms in regulated markets,” it said in its earnings news release Wednesday.
Zynga expects to see “modest bookings” from RMG this year, said Vranesh. But he said “we do not believe they will be significant to 2013 results.” RMG “presents a new and significant growth opportunity, but many hurdles must be overcome,” including “significant competitive and legislative issues,” before it “meaningfully contributes” to Zynga revenue, Wedbush analyst Michael Pachter said Thursday.
The company generated $230 million in bookings in Q1, “exceeding our own expectations,” said Pincus. “The biggest driver of this upside” was the game FarmVille 2, which “outperformed with audience engagement and bookings hitting near peak levels in the quarter seven months after launch,” he said. But 2013 “remains a transition year and we continue to expect uneven” results, he said. Zynga expects a “significant decline” in Q2 bookings, reflecting the “challenging environment on the Web and our need to execute more consistently on new game development similar to that” with FarmVille 2, he said. As part of that strategy, it decided in Q1 to “kill” two unreleased games, he said.
Zynga’s “best growth opportunities are clearly on mobile,” said Pincus. The company now has 253 million monthly active users (MAUs) in total and a mobile audience of 65 million MAUs, he said. Zynga is still “in the early days” of “driving profitability on mobile,” but he said it’s “encouraged that advertising bookings” per daily active user and average bookings per paying user “more than doubled” year-over-year.
All major metrics data were weaker than a year ago. MAUs were down 13 percent year-over-year, said Zynga. Daily active users decreased 21 percent to 52 million. Monthly unique users decreased 18 percent to 150 million. Average daily bookings per average DAU decreased 11 percent. Monthly unique payers decreased 30 percent to 2.5 million.
Despite the “challenges ahead,” Zynga expects to exit this year “well positioned to lead in mobile,” said Chief Operations Officer David Ko. Although the social gaming market is expected to be “a $9 billion opportunity, it’s also an environment where only the strong will thrive,” he said.
There was a decline in bookings for Zynga Poker on the Web from Q4 due to “illegitimate credit card activity and the corrective actions” that Facebook and Zynga are taking to resolve it, said Ko. “This will likely have an adverse effect on our Poker Web bookings in the near-term,” but Zynga has “successfully dealt with similar threats in the past and are working closely with our partners to implement actions to address the issue,” he said.
In March, Zynga was one of the top mobile game developers in daily reach and time spent in the U.S., said Ko, citing comScore data. Zynga ranked No. 6 in total time spent on mobile devices, with 11.2 billion minutes, behind only Facebook, Apple, Microsoft, Google and Pandora, he said. Mobile bookings grew 21 percent from Q1 last year, said Vranesh. But they were down 8 percent quarter-over-quarter due to a “light slate” of new game launches in the past two quarters, he said. Facebook-related bookings represented 76 percent of total bookings, he said. “After a pause to clean up the slate, we expect to launch several” mobile games in Q2, and expect to see its audience metrics rise in the back half of the year, he said.
The launch in the next few weeks of Battlezone will mark its entry into the action role-playing game category, said Ko. Other Q2 releases include Draw Something 2, a social mobile game that launched Thursday on the App Store for the iPhone, iPad and iPod touch, and is “coming soon” to Google Play for Android devices, said Zynga.
Zynga expects to report revenue of $225 million to $235 million and a loss of $26.5 million to $36.5 million, or 3-5 cents a share, for Q2, it said. The forecast was weaker than expected, said Bank of Montreal Capital Markets analyst Edward Williams Thursday.
Pincus was paid the same $300,000 base salary in 2012 that he was paid in 2011, according to a proxy filing at the SEC Thursday. Ko received the same base salary in 2012, but that was 33 percent higher than his 2011 salary. Vranesh’s base salary grew 89 percent to $425,000. Zynga will hold its annual stockholders meeting June 4 in San Francisco, it said.