Zynga Lowers 2012 Outlook, Warns of Q3 Loss

Published October 04, 2012

| Reuters

Zynga Inc on Thursday slashed its 2012 outlook for the second time in two months, warning that lagging performance from its live Internet games and a writedown from an acquisition would drag down its third-quarter results, and its shares fell 18 percent.

The company estimated a third-quarter loss of 12 cents to 14 cents and projected 2012 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $147 million to $162 million versus its previous outlook for $180 million to $250 million.

Shares of Zynga fell 18 percent to $2.30, a record low, after trade was briefly halted. The company is due to report third-quarter financial results in three weeks.

Zynga, which is based in San Francisco, said it would take an $85 million to $95 million charge related to its $182 million deal in March for OMGPOP, a New York game studio that failed to replicate the success of Draw Something, its one hit game.

In late July, Zynga cut its 2012 per share earnings forecast, and its shares plummeted 40 percent. Shares had hit a high of $14.69 in March.

For most of this year, the social games maker has struggled to stem user flight from once-popular Facebook titles like "CityVille," while its game development pipeline has been plagued by delays.

Morale at Zynga, hailed a year ago as part of a new generation of hot consumer Internet companies, has been declining. The company has also been shaken by a number of executive departures, including Chief Operating Officer John Schappert.

In a memo to employees on Thursday, Zynga Chief Executive Officer Mark Pincus said the company would address its decline through "cost reductions and focusing our new game pipeline."

Sterne Agee analyst Arvind Bhatia said Zynga's lowered outlook was "not a surprise, but the magnitude is a big surprise", and he warned of the likelihood of steep cuts due to Zynga's shrinking top line.

"I don't think this bodes well for next year because they're going to exit the year with declining revenue and declining EBITDA," Bhatia said. "They've got 3,000 plus people and for the level of revenue they're generating, we should expect massive layoffs at Zynga."

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