SAN FRANCISCO — In the 14 months since Zynga sold shares to the public, the online game developer has been on a monumental losing streak. Games have been killed, crucial employees have fled and players have sought excitement elsewhere.
Any hopes that Zynga’s luck has substantially improved were dashed Tuesday when the company reported its fourth-quarter earnings. They were expected to be weak and they generally were, if not nearly as bad as some feared.
Revenue was $311 million, flat with the year before. Daily users of the games were down 6 percent from the third quarter, a clear measure of flagging interest. More casual users dropped as well.
Earnings per share were a penny, better than the 3-cent loss that analysts had been expecting on an adjusted basis. And Zynga’s cash hoard of $1.65 billion was untouched.
For the full year, revenue was $1.28 billion, up 12 percent from 2011. Not exactly what you would expect from a growth company.
Yet the company’s shares immediately rose in after-hours trading by 7 percent.In regular trading they were also up 7 percent to $2.73, largely on the basis of an analyst upgrade from Merrill Lynch. Many online stock sites, by contrast, have been portraying the company as going the way of Pets.com or MySpace. “Zynga’s Earnings May Reveal Its Impending Demise” read the headline at one of them.
Michael Pachter, a managing director of Wedbush Securities, is a Zynga optimist, of a sort. He wrote in an e-mail message before the earnings were released that he had “100 percent confidence” the company could pull off a turnaround but “zero confidence that they will.”
Zynga’s diminishing fortunes illustrate how quickly the prospect of Internet companies can wax and wane — a development compounded by the shift to smartphones. And it has a crucial test coming up: Can it successfully move its most popular games, starting with the Farmville franchise, from PCs to mobile devices?
The bigger issue for Zynga, which pioneered the concept of social gaming and is still the biggest developer, is whether its once-hot hand was merely being in the right place at the right time, a condition also known as dumb luck. Zynga hitched its rise to Facebook, which gave the developer preferential treatment. Games like Farmville and Mafia Wars boomed as the social network expanded its reach.
Only a small sliver of players ever bought the virtual goods that constituted Zynga’s main source of revenue, but that was a problem for the future. For a time in early 2011, Zynga’s initial public offering was touted as being as big as $20 billion. In the end, it was about half that, which was still a major achievement for a company less than five years old.
Almost immediately after the offering, a little over a year ago, the disappointments began. Zynga spent $180 million last March to buy the Internet craze Draw Something, abandoning its usual practice of just cloning hits. Draw Something had about 15 million daily users. Before the ink on the purchase was dry, nearly a third of them had departed for a newer craze. Zynga wrote over half the purchase price, but since Draw Something’s audience has continued to dwindle, the miscalculation was even worse.
More recently, critics have been pointing to the rise of King.com’s games, including Candy Crush, which makes the latest version of Farmville look as complicated as advanced physics.
“Who thought crushing candy would have been popular?” said Brian Blau, a Gartner analyst.
Weak Earnings Report for Zynga, but Stock Rises
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Weak Earnings Report for Zynga, but Stock Rises
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Weak Earnings Report for Zynga, but Stock Rises
