Zynga misses Q2 earnings estimates by a wide margin, incurring Wall Street’s wrath

Social gaming giant Zynga today posted a drop in stock prices, reporting earnings per share (EPS) at $0.01, far below the estimated $0.06 many analysts predicted ahead of time. It posted disappointing overall revenue as well, reporting $332.5 million, which is much lower than the $344.12 million estimation by analysts.

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Wall Street severely punished Zynga for its weak quarter, sending the company’s stock down $3.03, or about 40 percent, in after hours trading.

All this despite pretty good revenue growth. The social game publisher’s Q2 revenue of $332 million is up 19 percent over the previous year, and its six month year-to-date revenue of $653 million is up 25 percent year-over-year. Zynga is also reporting Q2 bookings of $302 million, up 10 percent year-over-year, with six months year-to-date bookings up 12 percent, at $631 million.

“Our games reached record audiences, achieving over 300 million monthly active users. We grew our mobile footprint five-fold in the year to 33 million daily active users making Zynga the largest mobile gaming network,” said chief executive Mark Pincus.

It wasn’t all sunshine and roses for the CEO, though: “We also faced new short-term challenges which led to a sequential decline in bookings. Despite this, we’re optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web.”

Zynga also reported today a non-GAAP EPS of $0.01, down from $0.05 in the second quarter of 2011 with a six months year-to-date non-GAAP EPS of $0.06, down from $0.16 in the first half of 2011.

Zynga’s stock price closed at $5.08 per share today, reflecting a $0.16 per share increase, or 3.32 percent, over its opening at $4.96. Overall, the stock is way down from a high of $14.69 this year, and the after-hours dive is making that drop even worse.

Wedbush Securities’ Michael Pachter mentioned his surprise at the dismal showing, acknowledging their lower guidance on flattish bookings and EPS. He attributes some of that to the shift from desktop to mobile, implying that they aren’t monetizing mobile as well. However, he cautions that the company may be actively conservative in its guidance, as their bookings are in fact up around 12 percent.

Zynga launched several new games this quarter, including Bubble Safari, which Zynga claims is the number one arcade game on Facebook. Additionally, Zynga released The Ville, which it reports is the number two game behind Zynga Poker, and four other games, including Ruby Blast, Zombie Swipeout, Zynga Slots, and Matching with Friends.

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On the user front, Zynga is reporting an increase of 23 percent year-over-year for daily active users (DAUs) for this second quarter, as well as an increase of 34 percent year-over-year in monthly active users (MAUs). Monthly unique users (MUUs) increased from 151 million in the second quarter of 2011 to 192 million in the second quarter of 2012, up 27% year-over-year, while monthly unique payers (MUPs) increased 16 percent. The bookings, however, as Pincus mentions above, were down 10 percent year-over-year, decreasing from $0.051 last year to $0.046 now.

Zynga is lowering its outlook to reflect delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something.

As a result, Zynga’s updated outlook for 2012 is as follows:

• Bookings are projected to be in the range of $1.15 billion to $1.225 billion.
• Adjusted EBITDA is projected to be in the range of $180 million to $250 million.
• Stock-based expense is projected to be in the range of $410 million to $430 million.
• Capital expenditures are projected to be in the range of $370 million to $380 million, which includes the purchase of our corporate headquarters building in April 2012.
• Our effective tax rate for non-GAAP net income is projected to be in the range of 50% to 60%.
• Non-GAAP weighted-average diluted shares outstanding are projected to be approximately 845 million shares in the fourth quarter of 2012.
• Full year 2012 non-GAAP EPS is projected to be in the range of $0.04 to $0.09.