Zynga profit growth fizzles out in June quarter

Thu Sep 22, 2011 1:09pm EDT

(Reuters) - Zynga, the top maker of Facebook games, revealed a 90-percent plummet in profit in the June quarter on Wednesday that raised fresh questions about whether the company can sustain its growth ahead of its much-anticipated IPO.

The company behind Cityville and Farmville, which filed for an initial public offering on July 1 worth up to $1 billion, said its net income dived to $1.4 million from $14 million a year earlier. Its profit also fell more than 90 percent sequentially, from $16.8 million in the three months ended March.

The company did not release a major new Facebook game until "Empires and Allies" on May 31, which could account for some of the profit drop. The company also spent money on acquisitions and its international push in the period.

Zynga has been increasingly challenged by other video game companies, which are starting to attack its Facebook bastion. Electronic Arts, which competes with Zynga on Facebook, has seen its recently launched "The Sims Social" gain more than 50 million monthly active users, passing some of Zynga's games in about five weeks.

Zynga declined to comment on its finances. But in a regulatory filing, it said the company's total costs and expenses rose $149 million from a year earlier and by $59 million from the previous quarter, according to the filing.

Revenue for the three months ended June 30 rose by 115 percent from a year earlier to $279 million. Revenue rose about 15 percent sequentially.

Earlier this month, media reports said Zynga's IPO was being delayed because of rocky market conditions.

In the updated filing, Zynga said it conducted a third-party analysis that estimated the probability of Zynga's IPO at 75 percent, down from the 80 percent estimate in the company's last filing. The third-party valuation raised Zynga's equity valuation to $14.05 billion, higher than the $13.98 billion from the previous.

(This story corrects throughout for rounding errors; corrects total costs

and expenses figures in paragraph 5 and revenue growth percentages in paragraph 6.)

(Reporting by Liana B. Baker; editing by Andre Grenon, Phil Berlowitz)

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