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Zynga shares bounce back, Nintendo disappoints

October 24, 2012|By Ben Fritz
  • Zynga's troubled stock rebounded after the company reported some better-than-expected news with its financial results Wednesday. Above, Mark Skaggs, senior vice president of product development at Zynga Inc., speaks during an event at Zynga Inc. headquarters on June 26.
Zynga's troubled stock rebounded after the company reported some… (David Paul Morris / Bloomberg )

Already prepared for the worst, Zynga Inc. shareholders got a welcome surprise Wednesday as the social gaming company reported better-than-expected revenue for the third quarter, plus a $200-million stock buyback and a partnership for online gambling in Britain.

Zynga shares shot up 13% in after-hours trading as a result, helping to partly reverse losses of 75% so far this year.

The San Francisco company warned investors two weeks ago that its financial performance for the year would be lower than expected and that it was taking a significant write-down on its $180-million purchase in March of Omgpop, the maker of the mobile game "Draw Something." (The final value of the impairment charge was $95.5 million.)

On Tuesday, Zynga announced it was laying off about 150 of its slightly more than 3,000 employees, closing one studio and seeking to shutter two more — and killing off 13 games. In financial results released Wednesday, Zynga said its cost-cutting measures would save $15 million to $20 million during the fourth quarter.

"The last several months have obviously been challenging to us," Chief Executive Mark Pincus said on a conference call with Wall Street analysts. "We didn’t create enough new heat for our players by innovating in content and features, and we weren’t able to bring new games to market fast enough to offset those declines."

Zynga reported revenue of $316.6 million for the quarter that ended Sept. 30, up 3% from a year earlier. Net income swung from a $12.5-million profit in 2011 to a $52.7-million loss during the third quarter this year, though much of that resulted from the Omgpop write-down.

The company has seen several of its games on Facebook losing popularity, a change that Pincus attributed in part to "faster-than-expected player adoption of mobile smartphones and tablets." Going forward, he said, mobile and Web developers will work together, and all new games will have an offering for smartphones or tablets.

In addition, Zynga is seeking growth by partnering with the British company bwin.party, and will launch what it calls "real money gaming" in Britain in the first half of 2013.

"We view this as ... a good first step but only a first step into what we think is a real opportunity for Zynga," Chief Financial Officer Dave Wehner said.

Zynga shares fell 7 cents, or 3.2%, to $2.13 on Wednesday before financial results were released.

Also Wednesday, Nintendo Co., the Japanese video game giant behind the Super Mario Bros. and the Wii console, reported lower-than-expected financial results and slashed its projected net income for the rest of the fiscal year 70%.

The company said that sales outside Japan of its portable 3DS device and games for it were softer than it had predicted.

Much of Nintendo’s fate rests on its new Wii U home console that launches in November. Nintendo is projecting to sell 5.5 million Wii U consoles and 24 million games for it by the end of its fiscal year March 31.

Wedbush Securities analyst Michael Pachter labeled the Wii U hardware guidance "disappointing" and guidance for Wii U games "unrealistic." He also predicted that Nintendo would not reach its projections for 3DS sales for the rest of the fiscal year.

Nintendo, like Zynga, has struggled as players flock to games on smartphones and tablets.

ALSO:

Zynga lays off 150 workers, closes studio, ends 13 games

'Draw Something' erasing Zynga profits

Zynga stock plummets below value of its cash and real estate

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