Uh-oh: Zynga releases earnings and lowers guidance for rest of the year

Zynga’s stock has struggled ever since the company went public last year. Today’s news isn’t like to help. In a press release issue just after the markets closed on Thursday, Zynga said its earnings and revenue would fall dramatically short of expectations this year:

“Zynga is also lowering its outlook for full year 2012 to reflect preliminary third quarter results and revised expectations for the remainder of 2012. The change in outlook is primarily due to reduced expectations for certain web games including The Ville, and delays in launching several new games.

The company’s updated outlook for full year 2012 includes:

Bookings projected to be in the range of $1.085 billion to $1.100 billion (compared to previous expectations of between $1.150 billion to $1.225 billion).

Adjusted EBITDA projected to be in the range of $147 million to $162 million (compared to previous expectations of between $180 million to $250 million).

While not unexpected, it’s still shocking to see that Zynga announced a write-down of its OMGPOP acquisition:

Preliminary third quarter results primarily reflect weakness of certain games in our web “invest and express” category, and include an estimated impairment charge between $85 million and $95 million (excluding any income tax impact) related to the intangible assets previously acquired in connection with the company’s purchase of OMGPOP.

 

In the release, CEO and Founder Mark Pincus said the most recent quarter had been “challenging.” To wit:

“The third quarter of 2012 continued to be challenging and, while many of our games performed to plan, as a whole we did not execute to our satisfaction. We’re addressing these near-term challenges by implementing targeted cost reductions in the fourth quarter and rationalizing our product R&D pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business where we have one of the strongest positions in the industry. These actions support our strategy to transition from being a first party web game developer to a multiplatform game network. We remain optimistic about the opportunity for social gaming and the power of our player network of 311 million monthly active users. When we offer our players highly engaging content, they respond. FarmVille2 has been our most successful launch since CastleVille in terms of daily bookings, and we now offer 3 of the top 5 most popular mobile games in the U.S. in terms of time spent according to Nielsen.”

Pincus also wrote a blog post further explaining what went wrong, and what’s lies ahead:

“The reduced performance of some of our live web games is continuing to impact results and we have several new games which are at risk of launching later than expected.

We’re addressing these near-term challenges by targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business where we have one of the strongest positions in the industry. These actions support our strategy to transition from being a first-party web game developer to a multi-platform game network.”

“Targeted cost reductions.” Not necessarily radical, but still not the phrase most employees love to hear.

With a slew of executive departures, expect the pressure to mount for big changes at the company. And when the market opens tomorrow, we’ll find out just how low Zynga’s stock can go.

 

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