Zynga Inc. (ZNGA:US) tumbled to a record after the game maker cut its forecast for full-year bookings, a predictor of sales, citing lower demand for titles such as “The Ville.”
The shares of San Francisco-based Zynga dropped 20 percent to $2.25 at 9:40 a.m. in New York, the lowest intraday price since the company’s December initial public offering. Shares of Facebook (FB:US) Inc., operator of the social network responsible for most of Zynga’s game revenue, declined 2.7 percent to $21.36.
Bookings this year will be $1.085 billion to $1.1 billion, compared with an earlier forecast for $1.15 billion to $1.225 billion, Zynga said yesterday in a statement. The company also wrote down the value of its acquisition of OMGPop Inc. and sliced its forecast for a closely watched measure of profitability.
Zynga, which makes most of its money by selling virtual goods in games played on Facebook, is struggling with slowing growth as users spend more time on mobile devices. Pressure on the stock, which had fallen (ZNGA:US) 72 percent since the IPO, has lowered the value of equity used to compensate staff, hastening the departure of some of the company’s key managers.
“Another disappointment for investors,” said Paul Sweeney, an analyst at Bloomberg Industries. “The challenge for Zynga is to deliver a steady stream of hit games.”
Zynga estimated it will have impairment costs of $85 million to $95 million related to the purchase of OMGPop, the mobile-app maker it bought for $180 million earlier this year. Its hit game, “Draw Something,” lost millions of users after the purchase, reflecting the high amount of risk in growing through acquisitions, said Arvind Bhatia, an analyst at Sterne Agee & Leach Inc.
“That company didn’t have anything else outside of ‘Draw Something,’” Bhatia, who is based in Dallas, said in an interview. “It was a fad -- people did it for a while and nobody’s doing it any more.”
In a memo to employees posted to Zynga’s blog, Chief Executive Officer Mark Pincus cited “overall weakness in the invest and express category” as a contributor to the shortfall, referring to “FarmVille” and similar games that encourage players to spend hours buying virtual items they can show off to friends.
“Their bread-and-butter games are not working too well,” Bhatia said.
Before some costs, earnings before interest, taxes, depreciation and amortization will be $147 million to $162 million this year, compared with an earlier projection for $180 million to $250 million, Zynga said.
The company said it expects to report a net loss of $90 million to $105 million for the third quarter. Excluding some items, it will break even or post a loss of 1 cent a share.
Third-quarter revenue was $300 million to $305 million, Zynga said. Analysts were predicting sales of $286.4 million, the average of estimates compiled by Bloomberg. Zynga said it will release its full results for the third quarter on Oct. 24.
Pincus is planning “targeted cost reductions” in the current quarter, the CEO said in yesterday’s statement. That may affect the game maker’s pipeline of new products, he said.
At least eight managers have left Zynga since early August, including Jeff Karp, its former marketing chief, who resigned last month.
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