Zynga Q1 Loss Narrows, But Shares Plunge On Weak Outlook

(RTTNews) - Zynga Inc. (ZNGA) Thursday reported a loss for the first quarter that narrowed from a year ago, helped mainly by lower expenses notwithstanding a decline in revenues. Loss for the quarter was smaller than what analysts expected, while revenues also trumped expectations.

Nonetheless, the online social games developer detailed a weak guidance for the third quarter, and said it will not "pursue a license for real-money gaming" in the US. Shares of Zynga plummeted 14 percent in extended trading hours on the Nasdaq.

For the past few quarters, Zynga's revenues have trended down with declining user base. Zynga generates majority of its revenues from the virtual-goods purchases done by its online gamers and through ads. However, the company has been impacted with user preference now shifting to mobile devices.

Zynga's daily active users decreased a whopping 45 percent year-over-year to 39 million, while monthly active users dropped 39 percent to 187 million.

Zynga is one of the world's largest developer of online social games that are popular in social networking sites such as Facebook Inc. (FB). Its offerings include FarmVille, CityVille, Words With Friends, CastleVille, and Zynga Poker.

Zynga's revenues for the second quarter dropped to $230.7 million from $332.5 million last year. Bookings, or revenues minus deferred revenues, decreased to $187.6 million from $301.6 million a year ago. Analysts polled by Thomson Reuters expected revenue of $185.42 million for the quarter. Online game revenues slipped 30 percent and advertising revenues decreased 33 percent.

Zynga had previously tried to obtain licenses to operate real-money games in the US, having announced its partnership with bwin.party to offer real-money online Poker and Casino games in the U.K. market. However, the difficulties in getting a legal license on a federal level for real-money making games in U.S. has made Zynga pullout.

The company in a statement said it "believes its biggest opportunity is to focus on free to play social games." Zynga noted making the focused choice not to pursue a license for real money gaming in the United States.

"...We need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company," said Don Mattric, Zynga's newly appointed CEO and former Microsoft Xbox head.

San Francisco, California-based Zynga's second-quarter loss narrowed to $15.8 million or $0.02 per share from $22.8 million or $0.03 per share last year.

Excluding items, adjusted loss was $6.1 million or $0.01 per share, compared to a profit of $4.5 million or $0.01 per share a year ago. On average, 23 analysts expected a loss of $0.04 per share for the quarter. Analysts' estimates typically exclude special items.

Total costs and expenses dropped to $261.1 million from $370.9 million a yea ago, helped mainly by job cuts and offices closures.

Looking forward to the third quarter, the company has forecast a loss of $0.05 to $0.02 per share, adjusted loss of $0.09 to $0.05 per share, revenues of $175 million to $200 million and bookings of $125 million to $150 million. Analysts currently expect a loss of $0.02 per share on revenues of $192.76 million for the third quarter.

ZNGA closed Thursday at $3.50, up $0.22 or 6.71%, on the Nasdaq. The stock, however, dropped $0.48 or 13.71% in after-hours trade.