Zynga swings to loss, partly blames Facebook

Zynga's users on Facebook are said to have declined because of a change in the platform

Social games provider Zynga swung to a loss in the quarter ended June 30, and lowered its outlook for the year, leading its shares to fall by about 40 percent in after-hours trading on Wednesday.

The maker of popular online games such as FarmVille reported revenue of US$332 million, up 19 percent from the same quarter a year earlier, but posted a net loss of $22.8 million in the quarter in contrast to a profit of $1.4 million a year earlier.

The company said it was lowering its outlook for 2012 because of 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, a game that became part of the Zynga suite after its March acquisition of New York-based social game developer OMGPOP.

Facebook's changes to its platform, to favor new games discovery over live game engagements, affected Zynga's core games, said John Schappert, chief operating officer of Zynga during the earnings call. Daily active users (DAUs) from the Facebook games ecosystem declined by 16 percent in the quarter to 141 million. The decline was higher at 34 percent in the company's core games. In the first quarter, DAUs from the Facebook ecosystem were up 29 percent to 168 million, Schappert said.

Facebook could not be immediately reached for comment.

Zynga projected 2012 adjusted earnings of four cents to nine cents a share, with bookings in the range of $1.15 billion to $1.23 billion. In April, Zynga had projected earnings of 23 cents to 29 cents per share, and bookings of $1.43 billion to $1.5 billion for the year.

The company which makes most of its revenue from the sale of virtual goods online said DAUs increased 23 percent from 59 million in the second quarter of 2011 to 72 million in the second quarter of 2012. Average bookings per DAU was down however in part because of increased use of mobile by users.

Zynga also saw advertising revenue grow by 170 percent year-on-year to $41 million during the quarter, and tremendous growth in mobile access to its games, which it expects will continue.

In June, it announced the Zynga With Friends network, a unified experience that will connect all players on any platform, from Facebook to iOS and Android to its own gaming website Zynga.com, a move that was also seen as a bid to get away from its dependence on Facebook.

Zynga found that people enjoy playing with a broader community beyond just only their friends, Schappert said. The company would open its network to third-party developers of both web and mobile games, he added.

Facebook related bookings were 80 percent of all bookings in the second quarter in comparison to 85 percent in the last quarter, and 93 percent a year ago, Schappert said.

Shares of Facebook also were down by about 8 percent in after-hours trading as the company derives about 15 percent of its revenue from Zynga games.

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John Ribeiro

IDG News Service
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