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Zynga's Q1 Loss Narrows, Revs Beat

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Zynga Inc. reported first-quarter loss (including stock-based compensation expenses) of 4 cents per share, a penny narrower than the Zacks Consensus Estimate of a loss of 5 cents.

Quarter Details

Zynga reported revenues of $168.0 million, down 36.3% from the year-ago quarter. However, revenues comfortably beat the Zacks Consensus Estimate of $147.0 million. U.S. contributed 59.0% of the revenues, while the rest came from international markets.

Online game revenues (78.7% of revenues) declined 42.4% year over year to $132.3 million. FarmVille 2, Zynga Poker and FarmVille accounted for a respective 30.0%, 24.0% and 10.0% of online game revenues in the quarter. Advertising revenues (21.3% of revenues) were up 5.1% from the year-ago quarter to $35.8 million.

Zynga’s bookings decreased 29.8% from the year-ago quarter to $161.4 million, which were much better than the guided range of $138.0 million–$148.0 million. Average daily bookings per average DAU (ABPU) increased 28.0% year over year to 6 cents in the reported quarter.

Daily Active Users (DAU) was down 46.2% year over year to 28 million. Monthly Active Users (MAU) also declined 51.4% year over year to 123 million.

Web DAUs and mobile DAUs were 12.0 million and 16.0 million in the reported quarter respectively. Web MAUs and mobile MAUs, on the other hand, were 61.0 million and 62.0 million respectively.

During the quarter, the company launched FarmVille 2: Country Escape in sixteen different languages on Apple’s (AAPL - Free Report) iOS and Google’s Android platforms. At launch itself, the game received Apple App Store’s “Editor Choice” award featuring in 155 different nations and Google Play top tier featuring in seventy-one nations.

Adjusted EBITDA was $14.0 million in the quarter, down from $29.0 million reported in the year-ago quarter.

GAAP net loss was $61.2 million which when adjusted for one-time items and stock based compensation amounted to $46.7 million led to non-GAAP net loss of $31.1 million. The company reported a net loss of 4 cents in the quarter as compared to a loss of 3 cents reported in the year ago quarter.

Balance Sheet & Cash Flow

At the end of the first quarter, Zynga had cash and cash equivalents (including marketable securities) of $1.14 billion compared with $1.54 billion in the previous quarter. Cash outflow from operations were $24.0 million, while free cash outflow was $25.0 million in the last quarter.


During the reported quarter, Zynga acquired gaming company, NaturalMotion for a sum of $527.0 million. We believe that this acquisition will prove to be significant for Zynga going forward as the only way the company can regain its dominant position in the industry is by developing new games.

Zynga can leverage NaturalMotion's Euphoria game animation engine to develop new games. Euphoria has been used in the past to develop many successful games like Grand Theft Auto V and Red Dead Redemption.

Restructuring & Executive Change

The company also completed its global workforce reduction program and the closure of its datacenter facility in the quarter, which formed an integral part of its long-term cost reduction strategy.

Zynga founder Mark Pincus resigned from the office of the Chief Product Officer following the results. Earlier in Jul, 2013 Mr. Pincus had resigned from the office of the CEO and since then had been serving as CPO. However, Mr.Pincus will continue serving as the chairman of the board. Also, Alex Garden has been appointed as the new President of Zynga Studios.


For the second quarter of 2014, Zynga expects the non-GAAP figure in the range of break-even to 1 cent per share. Currently, the Zacks Consensus Estimate is pegged at a loss of 3 cents per share. The company expects to generate revenues between $140.0 and $160.0 million.

Bookings for the second quarter are projected in the range of $175.0–$195.0 million, Moreover, Zynga expects adjusted EBITDA in the range of $10.0 to $20.0 million.

For full-year 2014, Zynga forecasts bookings in the range of $770.0 to $810.0 million. Adjusted EBITDA is expected to be in the range of $70.0 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 first quarter results. 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 Activision Blizzard, International Game Technology (IGT - Free Report) and Electronic Arts (EA - Free Report) remains a major concern.

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

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