Zynga 4Q loss narrows as game maker cuts costs

Thursday - 2/7/2013, 6:34am EST

BARBARA ORTUTAY
AP Technology Writer

NEW YORK (AP) -- Online games company Zynga said its loss narrowed in the latest quarter even though revenue was largely unchanged as the company cut expenses by laying off workers, closing offices and shutting down poorly performing games.

The results exceeded Wall Street's muted expectations, and Zynga Inc.'s battered shares increased nearly 7 percent in after-hours trading after the release of the results. After a difficult 2012 in which Zynga saw its stock price decline by 75 percent, CEO Mark Pincus called 2013 a "pivotal transition year" for the company as it seeks to cut costs further and broaden revenue sources, especially from mobile games.

Zynga went public in December 2011 with a lot of promise. Games such as "FarmVille" and "CityVille" were popular on Facebook, as the social media company was itself preparing for a highly anticipated initial public offering of stock.

But Facebook's stock stumbled, and Zynga's tumbled with it. Demand for Zynga's games weakened, and investors were worried both about Zynga's overreliance on Facebook for its revenue and signs that the two were growing apart. Zynga's stock ended 2012 at $2.36, well below the IPO price of $10.

Zynga responded by announcing in October that it was cutting about 5 percent of its full-time workforce of roughly 3,200 employees. The San Francisco company also killed 13 older games and closed development studios in Boston and elsewhere.

Those cuts helped.

Zynga said Tuesday that it lost $48.6 million, or 6 cents per share, in the October-December period. That compares with a loss of $435 million, or $1.22 per share, in the same period a year earlier. Zynga began trading publicly on Dec. 16, 2011, and was privately held for most of the 2011 quarter.

Zynga's revenue was largely unchanged at about $311 million. But it was well above analysts' average estimate of $250 million, as polled by FactSet.

Zynga cut fourth-quarter expenses by two-thirds, to $274 million from $798 million.

Though its fortunes have faded, Zynga is still the most popular maker of games on Facebook. As of the end of the year, it had five of the top 10 games played on the world's largest social networking site. "FarmVille 2," which launched in September, performed well -- the company said it was its most successful game launch in two years.

Zynga said it had 298 million active users each month on average in the fourth quarter, up 24 percent from 240 million a year earlier. But that's down 4 percent from 311 million in the third quarter of 2012.

Like Facebook, Zynga is trying to position itself as a mobile company as people spend more time on smartphones and tablet computers. The company said it had 72 million monthly players on mobile devices.

"Mobile, however, remains a more fragmented experience. Despite the incredible growth in mobile gaming, it's still hard for any of us to find people to actually play with," Pincus said in a conference call with analysts. "We're amazed that the number one way our 'Words With Friends' players find new opponents in their games is through the 'random' button. We know we can offer them something more compelling than that."

Zynga's chief operating officer, David Ko, said in an interview that growing the company's paying mobile user base is "part of a long-term strategy for us"

"Two years ago, about 20 people were focusing on mobile," he said. "Today we have almost the entire company focused on (the) mobile opportunity."

For the current quarter, Zynga said it expects an adjusted loss of 5 cents to 4 cents per share and revenue of $255 million to $265 million. Analysts were predicting a loss of 1 cent per share and revenue of $268 million.

Shares climbed 19 cents, or 6.9 percent, to $2.93 in after-hours trading after gaining 18 cents to close at $2.74 during the regular session. Zynga's stock has traded from $2.09 to $15.91 in the past 52 weeks.


Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.