On the heels of a catastrophic quarter, Zynga reports revenue of $317M and non-GAAP EPS of $0.00

On the heels of a catastrophic quarter, Zynga reports revenue of $317M and non-GAAP EPS of $0.00

Today Zynga reported its quarterly performance, with revenues of $317 million and non-GAAP earnings per share of $0.00. On a GAAP basis, the company lost $0.07 per share.

The company had previously pre-announced its earnings, with expectations of revenue between $300 million and 305 million. On a non-GAAP basis, Zynga expected to lose a cent per share, or lie flat. On a GAAP basis, the firm expected to be deeply negative. The company generally outperformed expectations. In perspective, however, Zynga’s revenues were up just 3% on a year-over-year basis.

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Critically, the company was net cash positive from its operations in the quarter by some $30 million. Zynga anticipates earnings in the fourth quarter of $0.02 to $0.03. The company also intends to buy back some 200 million shares.

The company‚Äôs highly negative financial GAAP performance bears in mind its steep writedown ‚Äď impairment charge, if you must ‚Äď of its purchase of the gaming company OMGPOP. The company‚Äôs hit from that purchase was a significant¬†percentage¬†of the total dollar value the deal.

Adding to the painful quarter, yesterday the firm abruptly fired 100 of its staff, a 5% reduction, during Apple’s event, a move that was widely viewed as designed to avoid bad press. It didn’t work. The company’s stock has fallen from highs in the teens to just over $2. In normal trading, Zynga bounced around, managing to be both up and down during the day.

The firm‚Äôs CEO, in a note to investors, acknowledged the rough patch that his company has navigated: ‚Äúthe last several months have been challenging for us.‚ÄĚ Get that man an award for understatement.

The company is up sharply in after-hours trading, thus far climbing more than 15%. That Zynga managed to right its ship, in a sense, is something that could help it turn around the currently negative narrative that surrounds the company. The rise in its stock could also help it retain employees perhaps disappointed in its performance thus far as a public company.

Perhaps troubling is that even as the firm’s monthly and daily active user counts are rising on a quarterly basis, its bookings from that activity are down:

Average daily bookings per average DAU (ABPU) decreased from $0.058 in the third quarter of 2011 to $0.047 in the third quarter of 2012, down 19% year-over-year.

That could indicate that the company is having a harder time monetizing new titles, as its older hits age. FarmVille 2, however, appears to be breaking fresh ground for the company.

What follows is Zynga’s earnings release, with charts excised:

SAN FRANCISCO,¬†Oct. 24, 2012¬†(GLOBE NEWSWIRE) ‚ÄĒ¬†Zynga Inc.¬†(Nasdaq:ZNGA), the world‚Äôs leading provider of social game services, today announced financial results for the third quarter ended¬†September 30, 2012.

  • Q3 Revenue of¬†$317 million, up 3% year-over-year, nine months year-to-date revenue of¬†$970 million, up 17% year-over-year
  • Q3 Bookings of¬†$256 million, down 11% year-over-year, nine months year-to-date bookings of¬†$886 million, up 4% year-over-year
  • Q3 EPS of¬†($0.07), down from¬†$0.00¬†in the third quarter of 2011, nine months year-to-date EPS of¬†($0.22), down from¬†$0.00¬†in the first nine months of 2011
  • Non-GAAP EPS of¬†$0.00, down from¬†$0.04¬†in the third quarter of 2011, nine months year-to-date non-GAAP EPS of¬†$0.06, down from$0.20¬†in the first nine months of 2011

‚ÄúWhile the last several months have been challenging for us,¬†Zynga¬†remains well positioned to capitalize on the growth of social gaming. We‚Äôre implementing a number of steps to drive long-term growth and profitability. The successful launches of FarmVille 2 and ChefVille in the third quarter demonstrate that when we develop great games, our large player audience engages. It‚Äôs more clear than ever that along with search, shop, and share, play is a fundamental pillar of the Internet, and¬†Zynga¬†continues to be the leader,‚ÄĚ said¬†Mark Pincus, CEO and Founder,¬†Zynga.

Business Highlights

  • Daily active users (DAUs) increased from 54 million in the third quarter of 2011 to 60 million in the third quarter of 2012, up 10% year-over-year.
  • Monthly active users (MAUs) increased from 227 million in the third quarter of 2011 to 311 million in the third quarter of 2012, up 37% year-over-year.
  • Monthly unique users (MUUs) increased from 152 million in the third quarter of 2011 to 177 million in the third quarter of 2012, up 17% year-over-year.
  • Average daily bookings per average DAU (ABPU) decreased from¬†$0.058¬†in the third quarter of 2011 to¬†$0.047¬†in the third quarter of 2012, down 19% year-over-year.
  • Monthly Unique Payers (MUPs) decreased from 4.1 million in the second quarter of 2012 to 3.0 million in the third quarter of 2012, down 28% sequentially, largely driven by¬†Draw Something.
  • Zynga¬†launched four games during the third quarter of 2012, including two titles on web-based platforms:¬†ChefVille, a social ‚Äėville-style cooking game, and¬†FarmVille 2,¬†Zynga‚Äôs¬†next-generation game built entirely in 3D and the new chapter in its¬†FarmVille¬†legacy; and two titles on mobile platforms:¬†Gems With Friends, the sixth title in the With Friends franchise, and¬†Montopia, a role-playing game that challenges players to collect monsters through an adventure.
  • We are seeing positive early results from the recent launches of¬†ChefVille¬†and¬†FarmVille 2.¬†FarmVille 2¬†already has 60 million monthly active users according to AppData with approximately 500,000 unique payers.
  • As of¬†September 30, 2012,¬†Zynga¬†held five of the top ten games on Facebook, based on DAUs as reported by AppData, including some of its most established titles,¬†Words With Friends¬†and¬†Zynga Poker, and some of its newest games,¬†Bubble Safari, ChefVille,¬†andFarmVille 2.
  • In the third quarter of 2012,¬†Zynga¬†continued to expand its platform offering for third-party publishers and introduce players to new gaming genres, launching five partner games on¬†Zynga.com¬†‚ÄĒ Sava Transmedia‚Äôs¬†Rubber Tacos, RocketPlay‚Äôs¬†Sports Casino,¬†Majesco Entertainment Company‚Äôs¬†Mini Putt Park, 50 Cubes‚Äô¬†Fashion Designer,¬†and Row Sham Bow‚Äôs¬†Knights of the Rose.¬†The Company also welcomed nine new partners, including¬†Antic Entertainment, Big Bite Games, CrayonPixel, Eruptive Games, JamRT, The Method, Playnery, RocketPlay, and TikGames.¬†Zynga‚Äôs¬†third-party mobile offerings also took flight with its first game launch ‚ÄĒ¬†Horn¬†by Phosphor Games.

Third Quarter 2012 Financial Summary

  • Revenue:¬†Revenue was¬†$316.6 million¬†for the third quarter of 2012, an increase of 3% compared to the third quarter of 2011 and a decrease of 5% compared to the second quarter of 2012. Online game revenue was¬†$285.6 million, a decrease of¬†$2.3 million¬†compared to the third quarter of 2011 and a decrease of 2% compared to the second quarter of 2012. Advertising revenue was¬†$31.1 million, an increase of 64% compared to the third quarter of 2011 and a decrease of 24% compared to the second quarter of 2012.
  • Bookings: Bookings were¬†$255.6 million¬†for the third quarter of 2012, a decrease of 11% compared to the third quarter of 2011 and a decrease of 15% compared to the second quarter of 2012.
  • Net income (loss):¬†Net loss was¬†$52.7 million¬†for the third quarter of 2012 compared to net income of¬†$12.5 million¬†for the third quarter of 2011.¬†Net loss for the third quarter of 2012 included an impairment charge of¬†$95.5 million¬†related to the intangible assets previously acquired in connection with our purchase of¬†OMGPOP. Net loss for the third quarter of 2012 also included¬†$37.8 million¬†of stock-based expense compared to¬†$22.6 million¬†of stock-based expense included in the third quarter of 2011.
  • Non-GAAP net income (loss):¬†Non-GAAP net loss was¬†$0.4 million¬†for the third quarter of 2012, down from non-GAAP net income of$31.7 million¬†in the third quarter of 2011 and non-GAAP net income of¬†$4.6 million¬†in the second quarter of 2012.
  • Adjusted EBITDA:¬†Adjusted EBITDA was¬†$16.2 million¬†for the third quarter of 2012 compared to¬†$58.1 million¬†for the third quarter of 2011 and¬†$65.3 million¬†in the second quarter of 2012.
  • EPS:¬†Diluted EPS was¬†($0.07)¬†for the third quarter of 2012 compared to¬†$0.00¬†for the third quarter of 2011 and¬†($0.03)¬†for the second quarter of 2012.
  • Non-GAAP EPS:¬†Non-GAAP EPS was¬†$0.00¬†for the third quarter of 2012 compared to¬†$0.04¬†for the third quarter of 2011 and¬†$0.01¬†for the second quarter of 2012.
  • Cash and cash flow:¬†As of¬†September 30, 2012, cash, cash equivalents and marketable securities were approximately¬†$1.6 billion, compared to¬†$926.3 million¬†as of¬†September 30, 2011¬†and approximately¬†$1.6 billion¬†as of¬†June 30, 2012. Cash flow from operations was$30.1 million¬†for the third quarter of 2012, compared to¬†$47.5 million¬†for the third quarter of 2011.¬†Free cash flow was¬†$16.7 million¬†for the third quarter of 2012 compared to¬†($17.6) million¬†for the third quarter of 2011.

Top Image Credit: Emmanuel Huybrechts

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