The Death of Zynga, 2012 Earnings Guidance Cut By More Than Half

Source: Zynga
Zynga, Inc. (NASDAQ: ZNGA) has just reported its quarterly earnings of $0.01 EPS and a 19% sales growth with $332 million in revenue.  The results compare to the Thomson Reuters consensus estimates of $0.06 EPS and $344.1 million in revenue. The company reports that bookings of $302 million were up 10% year over year. The social video game operator also gave some poor 2012 guidance with delayed game launches as follows:
  • Bookings of $1.15 billion to $1.225 billion.
  • Adjusted EBITDA of $180 million to $250 million.
  • Cap-Ex of $370 million to $380 million.
  • Effective tax rate for non-GAAP net income of 50% to 60%.
  • Full year 2012 non-GAAP EPS of $0.04 to $0.09.

Wait a second here… $0.04 to $0.09 EPS???? Thomson Reuters has a consensus target of $0.27 EPS.  

The young company has been gutted since its IPO.  Shares are barely above $5.00 after having traded above $15.00 briefly at its recent peak.  The world is just over its love affair of Web 2.0 (or it is 3.0 yet?) companies with complex share structures and new-age leadership.

CEO Mark Pincus tried to remain positive by saying, “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.”

Pincus can try to be positive but no one is buying… Shares closed up 35 at $5.07 but the stock is down a massive 33% at $3.35 in the after-hours.  This marks a post-IPO low.

This is living proof that freemium games may be just a free waste of time.  Maybe the recession allowed the entertainment to just be good enough.  Either way, having a virtual farm may have just become that much more uncool.

Zynga has a large presence on Facebook Inc. (NASDAQ: FB), and this has to offer something to reflect upon before Facebook reports earnings on Thursday. Update at 5:44 PM EST: For whatever it is worth, Facebook shares are down over 7% on the Zynga news and Zynga’s COO has said that Facebook users did not remain engaged. The company has also said that it needs to get beyond a Facebook web footprint.