Zynga Inc. (ZNGA) reported a fourth-quarter loss (including stock-based compensation expenses) of 5 cents per share, a couple cents narrower than the Zacks Consensus Estimate. Zynga reported a penny loss in the year-ago quarter.
Zynga’s fourth-quarter results were negatively impacted by lower revenue growth and operating loss. Shares jumped approximately 23.6% (84 cents) to close at $4.40 on Friday, Jan 31, 2014.
Quarter Details
Zynga reported revenues of $176.0 million, down 43.3% from the year-ago quarter. This comfortably beat the Zacks Consensus Estimate of $143.0 million. U.S. contributed 58.0% of the revenues, while the rest came from international markets.
Online game revenues (86.4% of revenues) plummeted 44.5% year over year to $152.3 million. FarmVille 2, Zynga Poker and FarmVille accounted for a respective 26.0%, 21.0% and 15.0% of online game revenues in the quarter. Advertising revenues (13.6% of revenues) were down 34.7% from the year-ago quarter to $24.1 million.
Zynga’s bookings decreased 43.9% from the year-ago quarter to $147.0 million, which were much better than the guided range of $130.0 million–$140.0 million. Average daily bookings per average daily active user (ABPU) increased 19.0% year over year to 6 cents in the reported quarter.
Web bookings were $96.0 million in the last quarter, as compared with $207.0 million in the year-ago quarter. Mobile bookings were $51.0 million, as compared with $54.0 million in the year-ago quarter.
Daily Active Users (DAU) were down 51.8% year over year to 27 million. Monthly Active Users (MAU) also plunged 62.4% year over year to 112 million.
As of Dec 31, 2013, three of its games were in the list of 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 25.5% decrease in costs to $203.8 million.
Adjusted EBITDA was $3.0 million in the quarter, down from $45.0 million reported in the year-ago quarter. Zynga reported non-GAAP net loss of $20.8 million (excluding stock-based compensation expense) as compared with net profit of $7.0 million in the year-ago quarter.
At the end of the fourth quarter, Zynga had cash and cash equivalents (including marketable securities) of $1.13 billion compared with $1.52 billion in the previous quarter. Cash from operations were $7.7 million, while free cash flow was $6.8 million in the last quarter.
Acquisition
Zynga announced that it has agreed to acquire privately-held NaturalMotion, a leading mobile game and technology developer, for approximately $527.0 million in cash and equity. The acquisition expands Zynga’s footprints in two new consumer categories — Racing and People Simulation.
The deal will be accretive to non-GAAP earnings and generate bookings in the range of $70.0 to $80.0 million and adjusted EBITDA of $15.0 to $25.0 million in 2014.
Cost Reduction Plan
Zynga announced a cost cutting plan, which is expected to generate pre-tax savings in the range of $33.0 to $35.0 million in 2014. This excludes an estimated $15.0 to $17.0 million pre-tax restructuring charge in the first quarter.
Zynga expects to complete a workforce reduction of approximately 314 employees (approximately 15% of its current workforce) and also lower its spending on data center infrastructure.
Outlook
For the first quarter of 2014, Zynga expects non-GAAP loss of a penny. Currently, the Zacks Consensus Estimate is pegged at 3 cents loss. The company expects to generate revenues between $155.0 and $165.0 million.
Bookings for the first quarter are projected in the range of $138.0–$148.0 million, Moreover, Zynga expects adjusted EBITDA in the range of $5.0 to $10.0 million.
For full-year 2014, Zynga forecasts bookings in the range of $760.0 to $810.0 million. Adjusted EBITDA is expected to be in the range of $65.0 to $100.0 million. Non-GAAP earnings are expected to be in the range of a penny to 3 cents per share for the full year.
Our Take
Zynga reported better-than-expected fourth-quarter results. Improving bookings are expected to drive revenues, going forward. We believe that the acquisition of NaturalMotion will boost Zynga’s customer base in the long run. Moreover, the cost reduction program will improve profitability in 2014.
Although Zynga is expected to grow in the near term based on its innovative product pipeline and its improving position in the mobile gaming sector, intensifying competition from other players such as International Game Technology (IGT) and Electronic Arts (EA) remains a major concern.
Currently, Zynga has a Zacks Rank #3 (Hold).
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