Zynga Inc. (ZNGA) reported third-quarter loss (including stock-based compensation expenses) of 3 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 9 cents.
Quarter Details
Zynga reported revenues of $202.6 million, down 36.0% from the year-ago quarter. This comfortably beat the Zacks Consensus Estimate of $148.0 million. Zynga’s bookings decreased 40.5% from the year-ago quarter to $152.1 million.
Advertising revenues (13.9% of total revenue) were down 9.1% from the year-ago quarter to $28.2 million. Online game revenues, which comprised 86.1% of the total revenue, plummeted 38.9% year over year to $174.4 million.
Zynga’s Web bookings were $106 million for the third quarter, down from $205.0 million in the year-ago quarter. Mobile bookings were $46.0 million for the third quarter, down from $51.0 million in the year-ago quarter.
Daily Active Users (DAU) was down 49.0% year over year to 60 million. Monthly Active Users (MAU) also declined 57.0% year over year to 133 million.
As of Sep 30, 2013, 3 of its games were in the list of the top 10 games on Facebook (FB), including its established franchises such as FarmVille 2, Zynga Poker, and Words With Friends.
The company undertook several cost-cutting initiatives, which included spending cuts in technology outside services, labor costs and marketing. These resulted in a 50.3% decrease in costs to $205.4 million.
Adjusted EBITDA was $6.9 million in the quarter, down from $16.2 million reported in the year-ago quarter. Zynga reported non-GAAP net loss of $16.2 million in the quarter compared to net loss of $0.4 million a year ago. However, including stock-based compensation, net loss came in at $27.7 million or 3 cents per share.
At the end of the third quarter, Zynga had cash and cash equivalents (including marketable securities) of $1.52 billion compared with $1.53 billion in the previous quarter. Zynga used $5.0 million cash for operating activities.
Outlook
For the fourth quarter of 2013, Zynga expects non-GAAP loss per share in the range of 4 cents to 5 cents. The company expects to generate revenues between $175 million and $185 million.
Bookings for the fourth quarter are projected in the range of $130 million–$140 million, Moreover, Zynga expects adjusted EBITDA in the range of ($15) to ($25) million to breakeven in the fourth quarter. For full year 2013, Zynga expects adjusted EBITDA to be in the range of ($25) to ($15) million.
Recommendation
Zynga posted a mediocre third quarter result with revenues falling considerably compared to the year-ago period. Although Zynga is expected to grow in the near term based on its innovative product pipeline and its dominant position in the social and mobile gaming sector, sales of the company’s online games have taken a major hit due to increased competition from other players such as International Game Technology (IGT) and Electronic Arts (EA).
Moreover, we note that barriers to entry are low in the social gaming market and this will attract new entrants, thereby increasing competition for Zynga over the long term.
Currently, Zynga has a Zacks Rank #3 (Hold).
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