Back to top

Analyst Blog

Zacks Equity Research

Zynga's Q4 Loss Narrows, Revs Beat

ZNGA EA FB

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Zynga Inc. (ZNGA - Snapshot Report) 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 - Analyst Report), 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 - Analyst Report) remains a major concern.

Currently, Zynga has a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%