BUSINESS

Zynga posts Q1 profit but continues to shed active users

TAGs: social gaming, Zynga

zynga-profit-player-declineSocial gaming outfit Zynga turned a $4.1m profit in Q1 2013 but raised eyebrows with sharp declines in the number of players using its games. The profit surprised analysts, who had predicted the company would lose over $27m. The company’s revenue for the quarter was also higher than analysts had projected, but the $263.6m figure still represented an 18% drop year-on-year. Bookings, the sum of virtual goods sales, suffered an even steeper decline, falling 30% to $229.8m. Advertising revenue, meanwhile, rose 21% year-on-year to $34m, although that was below Q4 2012’s $36.8m.

That Zynga was able to turn a profit is testament to (a) the continued popularity of its seven-month-old FarmVille 2 game and (b) the aggressive cost-cutting measures the company announced in October. Problem is, despite FarmVille 2’s success, Zynga’s player numbers are falling even faster than the number of people on its payroll. Daily active users fell 21% year-on-year to 52m (down 8% from Q4), while monthly active users fell 13% year-on-year to 253m (down 15% from Q4 and 22% from the 331m peak in Q3).

Zynga’s efforts to wean itself from its Facebook dependence is being ‘aided’ by the decline in popularity of its games compared to those of other developers, like King’s (formerly King.com) Candy Crush Saga and Wooga’s Diamond Dash. Zynga has been trying to steer customers toward its Zynga.com site and to its mobile offering, but it’s been slow going. Mobile contributed 22% of Zynga’s total bookings in Q1, roughly equal to Q4’s 21%.

Zynga’s real-money gambling tie-up in the UK with online gambling operator Bwin.party didn’t begin until after the Q1 reporting period ended, so there’s still no guidance as to how Zynga’s real-money poker and slots sites are faring. Zynga COO David Ko maintains that Zynga’s popular Poker title “represents one of our best long-term opportunities.” Long-term was the buzzword of the day, as CFO Mark Vranesh stressed that the company’s health shouldn’t be judged by “keeping score of the quarter. It’s about the long game.”

Zynga CEO Mark Pincus told analysts that 2013 “remains a transition year” and warned investors to expect “non-linear, uneven results and a significant decline in second quarter bookings.” Zynga says it expects to lose three to four cents per share in Q2 v. Q1’s one-cent profit. On the plus side, Zynga currently holds no debt and is sitting on $1.7b in cash. Zynga stock closed out Wednesday’s trading up 5.3% to $3.35 but has slipped nearly 9% in after-hours trading.

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