Zynga Earnings Preview: Cuts and Losses Lead the Charge
Zynga (NASDAQ: ZNGA), the producer of FarmVille, Words With Friends and other free social media games, is expected to report its third-quarter earnings after the market close Wednesday.
During the last quarter, Zynga reported an EPS of $0.01. This was significantly lower than the $0.06 that analysts had anticipated. Revenue came in at $332 million versus $344.12 million.
In the days and months that followed, Zynga shares have continued to decline. The company dabbled in gambling, formed new partnerships with Hasbro (NYSE: HAS) and Nokia (NYSE: NOK), avoided going private and reduced its headcount by more than 100 employees. At every turn, Zynga's value has continued to diminish.
New ranking results indicate that Zynga is losing one million players a day. At that pace, it will not take long for the company to blow through its 314 million monthly active users.
When Zynga reported its second-quarter results, the CityVille maker reduced its annual expectations by a significant margin. While the company had once expected to post a full-year EPS of $0.23 to $0.29, Zynga now expects its EPS to fall between $0.04 and $0.09.
Of the few investors that are still with Zynga (more than 80 percent have left since the IPO), many are hoping that the company can find a way to monetize its millions of users. But while Facebook (NASDAQ: FB) can make money selling ads, Zynga has attempted to profit from the sale of virtual goods. The company has expanded to mobile platforms as well. Thus far, neither venture has been hugely successful.
Could investors be in for a surprise this afternoon? There is always hope. But Zynga is in a very difficult position. In addition to the lack of revenue, Electronic Arts (NASDAQ: EA) recently filed a lawsuit against Zynga for copyright infringement. EA claims that Zynga's The Ville is a blatant copy of its own game, The Sims Social.
Win or lose, Zynga's game is already in trouble. Since October 1, The Ville has lost nearly 10 million of its monthly active users.
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