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The corporate logo for Zynga is seen on a screen outside the Nasdaq Market Site in New York, December 16, 2011.
Credit: Reuters/Brendan McDermid
By Liana B. Baker
Tue Feb 14, 2012 8:56pm EST
(Reuters) - Zynga Inc failed to boost the ranks of its online players compared to the earlier quarter, fanning worries that it will have to rely on new games and other ways to squeeze more revenue out of its users.
The stock fell 6.5 percent, or 93 cents, to $13.42 after-hours. Its shares have increased more than 25 percent since Facebook revealed on February 1 that 12 percent of its revenue comes from Zynga.
Zynga said on Tuesday it had 54 million active daily users in the three months ended December 31, flat from the previous quarter but up 13 percent from 48 million a year ago.
"They have to work harder to get existing traffic to pay more. That's a challenging proposition," said Sterne Agee analyst Arvind Bhatia.
Zynga's shares first swung wildly after its first-ever results as a publicly traded company were released, as Wall Street puzzled over its better-than-expected revenue and forecast for slowing sequential bookings in the first half of 2012.
Bookings is the metric Zynga uses to measure the cash it pockets upfront when people spend money on virtual items in its games such as tractors, houses or poker chips.
Zynga, which raised $1 billion in an initial public offering in mid-December, expects bookings of $1.35 billion to $1.45 billion this year.
"We expect that growth will be weighted towards the back-half of the year with slower sequential growth in the first half of the year," the San Francisco-based company said in a statement.
Chief Operating Officer John Schappert said in an interview that the pace of bookings will slow in the first and second quarters because of how its games are designed to gain momentum over time.
"It's not like a movie launch. The way these games work is they have a long tail and make money over time and that's why we still have the six-most played games on Facebook," he told Reuters.
Zynga expects adjusted earnings of 24 to 28 cents a share in 2012, which is above analysts' average estimate of 22 cents, according to Thomson Reuters data.
For 2012, Zynga said it expects its EBITDA, a measure of operating earnings that stands for earnings before interest, taxes, depreciation and amortization, to rise at least 28 percent to a range of $390 million to $440 million.
"They are guiding to very solid earnings growth," said Wedbush Securities analyst Michael Pachter. "But the question is, is that sustainable?"
FACEBOOK CONNECTION
Zynga said in its IPO prospectus last year that 94 percent of its revenue comes from Facebook. On Tuesday, it did not break out a figure for its Facebook revenue, which makes it harder for investors to fathom whether it is reducing its reliance on the social network.
"I think it would helpful for them to report a breakdown between mobile and social," said Baird Research analyst Colin Sebastian.
Given Zynga's dependence on Facebook for most of its revenue, investors are closely watching its strategy to diversify and make money from games on smartphones and tablets. Zynga said on Tuesday that it ended the year with 15 million daily mobile users, a five-fold increase from a year earlier.
Since Zynga went public, investors want to know as much as they can about chief executive Mark Pincus since he has tight control of the company. Pincus owns a special class of shares that grants him 37 percent voting power while his equity stake is much lower and public shareholders have a small percentage of votes.
In his maiden conference call on Tuesday, Pincus deflected one analyst's question about his management style and Zynga's corporate culture.
"If you read our values, that's my management style," Pincus said, adding that the company's values are listed on its website and on the walls of its headquarters.
Fourth-quarter revenue rose 59 percent to $311.2 million. Analysts, on average, had expected $301.08 million, according to Thomson Reuters I/B/E/S.
Zynga had a net loss of $435 million, or $1.22 a share. The net loss was affected by $510 million in stock-based compensation related to the company's IPO.
Excluding stock-based compensation, Zynga posted a profit of $37.2 million, or 5 cents a share, which beat analysts' average estimate of 3 cents.
(Additional reporting by Gerry Shih in San Francisco; Editing by Matthew Lewis, Richard Chang and Muralikumar Anantharaman)
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