Zynga said it saw third quarter revenue of $317 million, which was slightly above the lower range of $300 million to $305 million the company said it would see earlier this month. Bookings came in at $256 million, up 11 percent year-over-year. The company saw a loss of 7 cents per share, and its non-GAAP earnings, which exclude one-off share based compensation costs, were 0 cents per share.
“We failed to meet our own growth expectations,” said Zynga CEO Mark Pincus in the earnings call. “We’re taking a series of steps to drive long-term growth and profitability.” Pincus said two factors contributed to Zynga’s weaker-than-expected performance: poor execution in launching new games and in dealing with the faster-than-expected transition to mobile platforms.
Despite this, the company’s shares popped 15.1 percent in after-hours trading on news that Zynga is finally getting into real casino gaming. Zynga said it’s partnering with bwin.party, a real money gaming operator, to offer real online poker and casino games in the U.K. Even though Zynga can’t technically offer real money casino gaming in the U.S. because of regulations, international markets are still a multi-billion dollar opportunity that may dwarf the current size of the global social gaming industry. The company isn’t providing any guidance on how the casino gaming effort may affect its future earnings.
The report also comes just a day after the company engaged in cost-cutting with lay offs for about 5 percent of its workforce. The company decided to eliminate the Boston office and said it’s considering closing its U.K. and Japanese studios. Zynga said the moves would save the company about $15 to 20 million this quarter, before about $8 million to 12 million in restructuring charges. The whole program should save between $60 million and 80 million annually.
Pincus said that Cityville and Castleville all saw faster player declines than expected and that the company didn’t move fast enough to fill its pipeline back up. He also said that players were moving faster to mobile platforms than the company originally anticipated.
“[Tablets and phones] have increased competition for player time and attention,” he said on the call. Zynga’s userbase on mobile platforms actually declined this year, falling to 22 million daily active users from 33 million last quarter because of the decline of Draw Something, the Pictionary-like game Zynga acquired in the $180 million OMGPOP deal.
He added that Zynga’s network of mobile gamers reaches 30 percent of U.S. smartphone users and sees 10 billion minutes per month of play. Mobile games now account for 20 percent of the company’s total bookings.
One other move the company is announcing today is that it’s kicking off $200 million in share buybacks. That amount, at current after-hours share prices, would cover about 10 percent of the company’s outstanding stock.
Zynga had to downgrade its earnings expectations earlier this month because of poorer-than-expected performances from The Ville and Draw Something. The company also said that it expected to see bookings for the year come in at between $1.085 billion to $1.100 billion (down from previous estimates of between $1.150 billion to $1.225 billion).
A red flag in today’s earnings report was that the company saw average daily bookings per user fall to 4.7 cents per day from 5.8 cents a year earlier. That means Zynga is raking in almost 20 percent less per user per day than it was a year ago. The number of monthly unique payers also declined dramatically to 3 million in the third quarter from 4.1 million the quarter before — mostly because many Draw Something players made one-off purchases and then likely left the game.
Zynga’s shares have fallen from a peak of $15.91 earlier this year to a current $2.45 as the company hasn’t been able to diversify its business away from Facebook fast enough to satisfy investors. On top of that, other game developers like King.com and Wooga have eaten into Zynga’s marketshare on its home turf of Facebook. Yesterday, Facebook CEO Mark Zuckerberg said that while payments revenue from Zynga had fallen by 20 percent year-over-year, the rest of the gaming ecosystem was contributing 40 percent more in revenue than the year before. At the same time, a number of higher-level ranking executives have left either because they vested and saw other opportunities in and outside of gaming or because they weren’t a good cultural fit with the company. In a big recent loss, Paul and David Bettner, the brothers who essentially seeded Zynga’s success on mobile platforms, left the company a few years after they sold their studio Newtoy to the company.
In some positive news, the company said its sequel to Farmville, the game that literally put the company on the map, has already attracted 500,000 unique payers and 60 million monthly active users. The company has also signed up a number of third-party developers for its platform including Sava Transmedia, RocketPlay, 50 Cubes and Row Sham Bow.
“We had a major breakthrough with Farmville 2,” Pincus said. “We showed that we could bring a terrific 3D game to a mass market in a browser for free with a terrific design around it.”