* Q1 earnings 1 cent/shr, beating analyst forecast of 4 cent
* Company expects Q2 loss 3-5 cents/shr, worse than
analysts' 1 cent loss
* Online gamers fall 13 pct; shares fall 9 pct
* Company says has pipeline for new business but will take
By Gerry Shih
SAN FRANCISCO, April 24 Zynga Inc's
management on Wednesday pleaded for more time for its turnaround
effort after the online game maker forecast a
steeper-than-expected loss for the current quarter, sending its
The embattled publisher behind games such as "FarmVille" and
"Words With Friends" reported a surprise profit for its latest
quarter through steep cost-cutting, but Chief Executive Mark
Pincus said Zynga's business, although stabilized, may not pick
up until the latter half of the year.
The company also reported a 13 percent slide in monthly
figures for the number of people playing its games.
"We know that 2013 is a year of transition," Pincus told
analysts on a conference call. "We continue to expect
non-linear, uneven results."
On an adjusted basis, Zynga reported earnings of 1 cent per
share, beating analyst expectations of a loss of 4 cents per
share. But the company also projected a second-quarter loss
between 3 and 5 cents per share, exceeding the 1 cent per share
loss analysts had expected.
The results and Zynga's forecast sent its shares 9 percent
lower to $3.05 in extended trading.
Over the past 12 months, Zynga's shares have shed two-thirds
of their value while investors have watched the company struggle
to keep hold of gamers who once flocked to its games on Facebook
"While we recognize the decline in the user base on a macro
level, we have the pipeline coming down," Barry Cottle, the
company's chief revenue officer, said in an interview. "That's
going to happen over a period of time, not something that
happens in a quarter."
The company aims to build up its business with gamers on
smartphones as it loses users on PCs, but doubts remain over
whether this can sustain its revenues and profits.
In recent months, Zynga and Facebook have revised their
business partnership, as the game company sought to establish a
more independent network even at the risk of getting less
visitor traffic from the social media giant.
Over the past year, Zynga's monthly players have fallen to
253 million from 292 million, while its number of monthly paying
users shrank to 2.5 million from 3.5 million, the company said.
"The stock is down because of the guidance," said Sterne
Agee analyst Arvind Bhatia.
But in the long term, he added: "We continue to think that
any hope for real growth for this nebulous company really
depends on what it can do in real-money gaming."
In past quarters, Zynga has promised investors that it could
tap into a potentially lucrative new revenue stream by launching
real-money casino games around the world. The effort kicked off
in the last quarter in Britain, where such games are highly
But executives on Wednesday stayed largely mum about the
progress of its real-money inroads in other markets, saying that
it could be at least months before Zynga could begin any
meaningful operations in the United States, where real-money
gambling is illegal in many states.
"We can't tell you when the regulatory environment will let
us test that audience," Pincus said.
Other analysts said it was unrealistic to consider the talk
about real-money gaming as anything but a long-shot for the
"They're kind of in dream mode here as they go through the
process of trying to materialize the business," said Mike
Hickey, an analyst at National Alliance Capital Markets.
"They started with partnering in the UK market, which is
probably at least a year from ever being material."
Zynga executives blamed their eroding user base on gamers
abandoning computers for mobile devices, but pledged to
recapture the market once it releases its slate of mobile games
due out later this year.
In the meantime, the company will continue to rely on its
brand-name franchises, such as its aging but still-robust
"FarmVille" series, to generate sales from both mobile and
Executives argued that Zynga, which has been the most
popular game publisher for Apple Inc's iPhone, would be
better placed than rivals with its independent gaming network to
generate game downloads.
"Discoverability becomes such an important factor in how
apps are found," Cottle said. "If you look at challenges in
mobile, it gives us a distribution advantage in the
Still, it was unclear if the company would be able to wring
as much revenue from mobile users as it had from desktop gamers,
"The majority of their games are lower-monetizing
experiences on mobile platforms," Hickey said. "Certainly
they've attracted a large audience but it's hard to get much
money from that audience."
The company now derives 22 percent of its revenue from its
mobile platform, compared with 12 percent a year ago, but that
share remains modest compared with similarly sized technology
companies such as Twitter Inc, which gets more than half of its
revenue from mobile users.
On Wednesday, Zynga reported revenue of $263.6 million, down
18 percent from the year-ago quarter.
For the full year, the company projected that it could be
"If we launch the right games and get the right sort of
engagement, there's an opportunity that revenues will go up as
well," Chief Financial Officer Mark Vranesh said. "2013 is going
to be bumpy. It's going to be hard to predict."