Zynga misses: Q2 revenues of $332 million and non-GAAP earnings per share of $0.01 fall short of expectations

Today Zynga reported its second quarter financial results, including revenues of $332 million and earnings per share of $0.01. Analysts expected revenues of $344.12 million, and earnings per share of $0.06.

On the day’s trading, Zynga’s stock was up over 3% while the market was mixed. In after hours trading, the company is down sharply. As of the time of writing, Zynga is down over 30%. Given the magnitude of this miss, the company’s stock could fall even further.

The company’s revenues were up 19% on a year-over-year basis. For a newly public technology company, that level of growth is anemic. Critically, Zynga has lowered its forecasts for its full-year earnings per share to just $0.04, from $0.09. According to Business Insider, the Street had expected earnings of $0.27 per share for the year. The company also predicted higher compensation costs, and lower total bookings.

While its non-GAAP earnings per share were $0.01, Zynga lost $22.8 million (GAAP) in the quarter. The company, according to its own release, has some 300 million monthly active users. However, today’s results will likely cause some to wonder if the company can effectively monetize those numbers.

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This sets the stage for Facebook’s earnings release tomorrow. In after hours trading, Facebook has slipped, following this financial report. Facebook’s quarterly report tomorrow will be its first as a public company, giving it extra weight.

The short take is this: Zynga just set fire to more than a third of its market value by missing expectations by a simply astounding margin. If Facebook follows in its footsteps tomorrow, we could see the IPO door for tech companies slam shut.

What follows is Zynga’s release:

SAN FRANCISCO, July 25, 2012 (GLOBE NEWSWIRE) — Zynga Inc. (Nasdaq:ZNGA), the world’s leading provider of social game services, today announced financial results for the second quarter ended June 30, 2012.

• Q2 Revenue of $332 million, up 19% year-over-year, six months year-to-date revenue of $653 million, up 25% year-over-year
• Q2 Bookings of $302 million, up 10% year-over-year, six months year-to-date bookings of $631 million, up 12% year-over-year
• Q2 GAAP EPS of ($0.03), down from $0.00 in the second quarter of 2011, six months year-to-date GAAP EPS of ($0.15), down from$0.00 in the first half of 2011
• Non-GAAP EPS of $0.01, down from $0.05 in the second quarter of 2011, six months year-to-date non-GAAP EPS of $0.06, down from$0.16 in the first half of 2011

“The company achieved some significant milestones in the quarter including the launch of Bubble Safari, which is now the number one arcade game on Facebook, and the launch of The Ville, now the number two game behind Zynga Poker. Our advertising business continued to show strong growth with revenue up 170% year-over-year. Our games reached record audiences, achieving over 300 million monthly active users. We grew our mobile footprint five-fold in the year to 33 million daily active users making Zynga the largest mobile gaming network,” said Mark Pincus CEO and Founder,Zynga. “We also faced new short-term challenges which led to a sequential decline in bookings. Despite this, we’re optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web.”

Business Highlights

• Daily active users (DAUs) increased from 59 million in the second quarter of 2011 to 72 million in the second quarter of 2012, up 23% year-over-year.
• Monthly active users (MAUs) increased from 228 million in the second quarter of 2011 to 306 million in the second quarter of 2012, up 34% year-over-year.
• Monthly unique users (MUUs) increased from 151 million in the second quarter of 2011 to 192 million in the second quarter of 2012, up 27% year-over-year.
• Average daily bookings per average DAU (ABPU) decreased from $0.051 in the second quarter of 2011 to $0.046 in the second quarter of 2012, down 10% year-over-year.
• Monthly Unique Payers (MUPs) increased from 3.5 million in the first quarter of 2012 to 4.1 million in the second quarter of 2012, up 16% sequentially.
• Zynga launched six games during the second quarter of 2012, including three titles on web-based platforms: Bubble Safari and Ruby Blast, our second and third games in the arcade category, and The Ville, our next-generation “house and people” game; and three titles on mobile platforms: Zombie Swipeout, Zynga Slots, our third game in the casino category, and Matching With Friends, an original With Friends title.
• As of June 30, 2012, Zynga held seven of the top ten games on Facebook, based on DAUs reported by AppData, including some of our most established titles, Zynga Poker, FarmVille and CityVille, and one of our newest games, Bubble Safari, launched in the second quarter of 2012.
• During our Zynga Unleashed event held in June, we announced the Zynga With Friends network, a unified experience that will connect all players on any platform, from Facebook to iOS and Android to Zynga.com. Zynga With Friends will roll out a social lobby that will include features and services such as zFriends, live Social Stream, chat, as well as Zynga’s newly launched multi-player feature on Zynga.com. In addition, we unveiled planned new web and mobile games across new genres, including Zynga Elite Slots in the casino genre. We also announced several new, next generation games in the popular “Ville” genre, including two upcoming games, ChefVille and FarmVille 2.

Second Quarter 2012 Financial Summary

• Revenue: Revenue was $332.5 million for the second quarter of 2012, an increase of 19% compared to the second quarter of 2011 and an increase of 4% compared to the first quarter of 2012. Online game revenue was $291.5 million, an increase of 10% compared to the second quarter of 2011 and a decrease of $1.2 million compared to the first quarter of 2012. Advertising revenue was $40.9 million, an increase of 170% compared to the second quarter of 2011 and an increase of 45% compared to the first quarter of 2012.
• Bookings: Bookings were $301.6 million for the second quarter of 2012, an increase of 10% compared to the second quarter of 2011 and a decrease of 8% compared to the first quarter of 2012.
• Net income (loss): Net loss was $22.8 million for the second quarter of 2012 compared to net income of $1.4 million for the second quarter of 2011. Net loss for the second quarter of 2012 included $95.5 million of stock-based expense compared to $33.1 million of stock-based expense included in the second quarter of 2011.
• Non-GAAP net income: Non-GAAP net income was $4.6 million for the second quarter of 2012, a decrease of 88% compared to the second quarter of 2011 and a decrease of 90% compared to the first quarter of 2012.
• Adjusted EBITDA: Adjusted EBITDA was $65.3 million for the second quarter of 2012 compared to $65.1 million for the second quarter of 2011 and $86.8 million in the first quarter of 2012.
• EPS: Diluted EPS was ($0.03) for the second quarter of 2012 compared to $0.00 for the second quarter of 2011 and ($0.12) for the first quarter of 2012.
• Non-GAAP EPS: Non-GAAP EPS was $0.01 for the second quarter of 2012 compared to $0.05 for the second quarter of 2011 and $0.06for the first quarter of 2012.
• Cash and cash flow: As of June 30, 2012, cash, cash equivalents and marketable securities were $1.6 billion, compared to $964.5 million as of June 30, 2011 and $1.5 billion as of March 31, 2012. Cash flow from operations was $67.0 million for the second quarter of 2012, compared to $74.1 million for the second quarter of 2011. Free cash flow was ($204.4) million for the second quarter of 2012 as reported or $29.3 million excluding the purchase of the company’s headquarters, compared to ($0.4) million for the second quarter of 2011.

2012 Outlook

We are lowering our outlook to reflect delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something. As a result, our updated outlook for 2012 is as follows:

• Bookings are projected to be in the range of $1.15 billion to $1.225 billion.
• Adjusted EBITDA is projected to be in the range of $180 million to $250 million.
• Stock-based expense is projected to be in the range of $410 million to $430 million.
• Capital expenditures are projected to be in the range of $370 million to $380 million, which includes the purchase of our corporate headquarters building in April 2012.
• Our effective tax rate for non-GAAP net income is projected to be in the range of 50% to 60%.
• Non-GAAP weighted-average diluted shares outstanding are projected to be approximately 845 million shares in the fourth quarter of 2012.
• Full year 2012 non-GAAP EPS is projected to be in the range of $0.04 to $0.09.

Top Image Credit: ftchris