After announcing earnings results on Wednesday, Zynga (ZNGA) CEO Mark Pincus said to analysts in a conference call that the company had not timely introduced new games, and underestimated the growth speed of the popularity of mobile devices, resulting in the poor performance of the company.
However, the company’s better-than-expected third quarter results made investors excited Zynga reported its revenue increased by 3% from a year ago to $316.6 million for the fiscal third quarter ended September 30, 2012, topping analysts’ estimate of $291 million. Zynga incurred third quarter net loss of $52.7 million, compared to net income of $12.5 million a year ago. Diluted earnings per share was zero, on the basis of non-US GAAP while analysts had averagely expected to Zynga to post a net loss per share of $0.01 for the third quarter, not in accordance with US GAAP. Zynga expects non-US GAAP diluted earnings per share will be between $0.02 to $0.03, less than the $0.04 expected by analysts, on the basis of non-US GAAP. Zynga also confirmed that it will cut 5% of its staffs, to save $18 million to $ 20 million in operating expenses. To boost its stock price, the company also declared to buy back $200 million of shares. Affected by these relatively good news, Zynga stock price jumped $0.25, or 11.79% to $2.38 in the after-hours trading session on Wednesday. In the regular trading on Wednesday, Zynga stock price fell $0.07, or 3.23%, to close at $2.13. Zynga stock price also experienced a big day on Tursday with a gain of 12.2%. But happiness is short-lived, Zynga stock price lost 3.35% on Friday.
Pincus said, in order to restore the high growth, Zynga plans to launch two new online games each quarter of this year and four each quarter next year. It also plans to expand the game scope to the other categories, such as gambling game and players VS players game.
Pincus said there are two reasons for Zynga’s bleak performance. First, the company did not fully tap the potential of online games, CityVille and CastleVille. The company has found currently it is more and more of chanllenge to keep the two games attractive and that the speed of the decline in pre-sales volume for these games is becoming faster and faster. In short, Zynga did not create enough hot spots of content and function for players. Moreover, the company did not introduce new games to the market in time, to compensate for the decline in the performance of the old games. Second, the popularity of mobile devices grew at a speed faster than the company had expected. Various of mobile games are snatching Zynga’s users. Although the company has realized negative factors, is this too late?
In this regard, it is not accurate to say that Zynga will fall to breakdown. Just after Zynga stock price delivered poor performance, we have a more clear understanding of the actual value of Zynga. If the company does well on the mobile platform, it might stage a comeback to its splendor of the past.
Mobile platform is much different from the traditional website in many ways, the former is more complicated and miscellaneous, and in the present circumstances, Zynga’s expansion in this field will be more restricted. But on the mobile platform, whether from the point view of the number of daily active users, or user participation, the company is well ahead of its competitors. Zynga is likely to thrive again through business model and technical innovations.