Zynga expects to be profitable for full fiscal year, so to speak

The chief executive of the company known for games like FarmVille and Words With Friends said he expects the company to be profitable for the full fiscal year.

Of course, that’s not on a net income level. Rather, Don Mattrick said the company will be profitable based on its adjusted EBITDA (earnings before income tax, depreciation, and amortization) basis for the fiscal year that ends Dec. 31. That’s not quite as impressive as being profitable on the bottom line, as one-time charges could turn that pretax profit into a loss. But it’s an improvement compared to big losses from a year ago.

During a conference call with analysts today, Mattrick said that the company is “rewiring itself” for growth.

“We have an incredible opportunity to build new muscle, embrace new practices, and create bold ideas that will contribute to the growth of our market,” Mattrick said. “Our aspirations are to excel in content, build network value, to develop technology that benefits customers and to drive efficiencies in our business.”

The company said its GAAP (generally accepted accounting practices)  net loss for the third quarter ended Sept. 30 was $68,000, or break-even on a per share basis, while its non-GAAP net loss was 2 cents a share. Revenue was $203 million, down 36 percent from a year ago. Meanwhile, bookings were $152 million, down 40 percent from a year ago. Analysts expected the social game company to report a loss of 4 cents a share on revenue of $143 million. Zynga itself expected revenue of $175 million to $200 million and a net loss of $14 million to $43 million. A year ago, Zynga lost 7 cents a share on revenue of $317 million.

Above: Clive Downie, Zynga’s new chief operating officer.

Zynga didn’t announce any layoffs, as some had expected. Zynga also hired a new chief operating officer, Clive Downie, the former CEO of mobile gaming firm DeNA West, a division of Japan’s DeNA. Mattrick said Downie had great consumer insights and is a seasoned leader.

In after-hours trading, Zynga’s stock is up 11 percent to $3.93 a share.

“We are seeing sightlines to growth, and I am proud of the progress that we are making to compete more aggressively on the web, make our move to mobile, and develop new hits,” Mattrick said. “As we gear up for fiscal ‘14, our teams are developing strategic plans to achieve top-line growth with a focus on increasing customer satisfaction, margins, and cash flow over time. We look forward to sharing further details on these plans in the future.”

Mattrick said his five areas of focus will be to grow and sustain top franchises, create new hits, move to mobile, “prove out” the Zynga network, and drive efficiencies.

Among the core games, Mattrick only mentioned three of what were once many Zynga games: Zynga Poker, FarmVille, and Words With Friends. He’s pouring more resources behind those hits. He said the team is spending more time in the early stages of product development and focusing on testing, consumer satisfaction, audience engagement, and monetization.

Above: Zynga Poker

Image Credit: Zynga

Mattrick said a case in point was the Q3 launch of CastleVille Legends, a tablet-first game, which early indicators show is getting good retention among the core audience, he said. That title was one of the few that Zynga actively marketed in the quarter.

“When I joined in July, I shared my belief that the company has incredible assets that will assist us in taking advantage of the market and I firmly believe that our best days are ahead,” Mattrick said. ” We are at the forefront of an entertainment revolution – in an industry with explosive smart phone and tablet growth. Whether you measure it in terms of the number of devices or absolute revenue, the market will more than double over the next four years with 2.5 billion people – approximately one-third of the world’s population – using smart phones by 2017.”

He said gaming “continues to be one of the most important application segments on mobile globally – capturing 55 percent of all time spent on mobile and 67 percent of all time spent on tablet.”

Chief financial officer Mark Vranesh said that company saw better-than-expected results for Zynga Poker and a decrease in credit card fraud. Jesse Janosov, its general manager of the social casino games, recently left the company. He acknowledged that some games may continue to lose players as the Zynga continues to find its footing.

Zynga said it has three of the top 10 games on Facebook, based on daily active users: FarmVille 2, Zynga Poker, and Words With Friends.

Daily active users fell from 60 million the third quarter a year ago to 30 million now, down 49 percent. DAUs were down 23 percent from 39 million in the second quarter. Web DAUs were 16 million, while mobile DAUs were 14 million. Monthly active users fell from 311 million a year ago to 133 million in the third quarter, down 57 percent. They were down 29 percent from 187 million in the second quarter.

Zynga got a little more money per user. Average daily bookings per average daily active user were up from 47 cents a year ago to 55 cents. Monthly unique payers were 1.6 million, down from 3 million a year ago.

In late July, Mattrick laid out his 90-day plan to take the reins at Zynga. He has been inspecting every aspect of the company’s business and has warned that results will be volatile for some time.

For the fourth quarter, Zynga projects revenue of $175 million to $185 million. The net loss is expected to be $21 million to $31 million. Net loss per share is expected to be cents a share to 4 cents a share. Non-GAAP earnings per share is expected to be a loss of 4 cents to 5 cents.

Mobile publishers SoftBank and GungHo Entertainment recently bought a 51 percent stake in mobile-only game studio Supercell, the publisher of Hay Day and Clash of Clans, for $1.5 billion. With a $3 billion valuation, Supercell has just over 100 employees. Zynga, on the other hand, has around 2,206 employees, and its valuation was $2.85 billion before the market closed today.

“I am encouraged by what I have seen from Supercell and King,” Mattrick said. “They are generating hundreds of millions of dollars in profits. That shows the power of the category. When I look at what they have accomplished, when I think about it, I know we can accomplish equivalent things in the future. We have resources. I see the opportunity. I congratulate Ilkka [Panaanen, CEO of Supercell] and Riccardo [Zacconi, CEO of King]. It energizes us.”

Downie was scheduled to speak at GamesBeat 2013 on Wednesday. Sadly, he is dropping out of the schedule as he prepares for his new job.