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October 5, 2012 1:00 am
Zynga shares plunged 20 per cent in after-hours trading to a post-flotation low as the social gaming company warned of disappointing third-quarter earnings and cut further into its full-year expectations.
The San Francisco company also wrote down the value of the game developer OMGPOP by around $90m, barely six months after it was acquired for a reported $200m.
The latest warning follows disappointing second-quarter earnings that saw Zynga’s shares plummet 40 per cent. Zynga’s shares dropped 57 cents to $2.25 in after-hours trading on Thursday, compared to its $10 offer price at the time of December’s initial public offering.
It said it expected to report a net loss of $90m to $105m in the third quarter and a loss per share of 12 to 14 cents.
Brian Blau, an analyst at tech research firm Gartner, said: “It was much lower guidance than we had thought before – and this is the second time that’s happened.”
“The franchises they have are starting to get old. They’ve got to be careful. Aesthetics [in games] change.” Zynga may not have done enough to keep its players interested in its top games, he said. “Maybe they’re investing too heavily in new games and not giving games time to mature.”
The publisher blamed “weakness of certain games in our web ‘invest and express’ category” – a reference to its FarmVille-type games on the Facebook social network.
Zynga also lowered its outlook for the full year due to “reduced expectations for certain web games including The Ville and delays in launching several new games.”
It predicted bookings, or upfront sales, some of which can only be reported as revenue in future years, would now be around $1.092bn, down from previous expectations of around $1.187bn. Earnings before certain deductions would be around $154m, down from around $215m.
In July, it cut full-year earnings per share guidance to 4 to 9 cents a share, at a time when Wall Street had expected 26 cents.
Mark Pincus, chief executive and founder, said the third quarter had been “challenging” and the company “did not execute to our satisfaction”.
He said there would be cost-cutting in the fourth quarter as a result, as well as rationalising and prioritising of the group’s product pipeline.
Zynga has been trying to reduce its dependence on the Facebook platform, where it is the leading social game publisher, and Mr Pincus said the company would continue to invest in its mobile business – such as games for the iPhone.
In a message to employees, he urged them not to “lose sight of the bigger picture. The world is playing games and is increasingly choosing social games.
“Zynga has become synonymous with social gaming serving 311m monthly active users, the largest player network on web and mobile.”
Zynga has struggled to persuade players to pay for virtual items to enhance their experience in its free-to-play games and is looking beyond casual games to more sophisticated ones that attract easier-to-monetise hardcore gamers.
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