Zynga: Worst Internet IPO Ever?
It has been a difficult year for the popular crowd of Internet companies to say the least. Stock performances of the over-hyped social elites are becoming more reminiscent of the tech bubble by the day, with Zynga (NASDAQ:ZNGA) being the latest example.
Late Thursday, the provider of social game services announced preliminary financial results for the third quarter and lowered its full year outlook for the second time this year. Zynga is projecting third quarter revenue of $300 million to $305 million, with bookings in the range of $250 million to $255 million. This is actually inline with Wall Street estimates, but the company is still losing money. On a GAPP-basis it expects to report a net loss between $90 million and $105 million, with an adjusted EBITDA between $10 million and $15 million for the third quarter.
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Although Zynga already cut its full-year guidance once before in July, the company reduced its outlook for the year even more. Bookings are projected to be in the range of $1.085 billion to $1.100 billion, compared to previous expectations between $1.150 billion and $1.225 billion. Adjusted EBITDA is estimated to come in at $147 million to $162 million, down from the previous $180 million to $250 million range. Zynga will report full third quarter financial results on October 24, 2012.
“The third quarter of 2012 continued to be challenging and, while many of our games performed to plan, as a whole we did not execute to our satisfaction,” said Mark Pincus, Zynga’s CEO, in a press release. “We’re addressing these near-term challenges by implementing targeted cost reductions in the fourth quarter and rationalizing our product R&D pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business where we have one of the strongest positions in the industry.”
While Pincus says “near-term challenges,” shareholders have been experiencing long-term pain. As the chart below shows, Zynga shares are easily at the bottom of the recent Internet names to go public. Shares fell more than 20 percent on Friday to reach a new all-time low near $2.20, a far cry from its $10 initial public offering price last December. Shares are down about 74 percent year-to-date. Other companies such as Facebook (NASDAQ:FB) and Angie’s List (NASDAQ:ANGI) are also down heavily this year, but Zynga is still the worst. Meanwhile, Yelp (NYSE:YELP) and LinkedIn (NYSE:LNKD) are in positive territory year-to-date.
The announcement from Zynga prompted JPMorgan Chase (NYSE:JPM) analyst Doug Anmuth to cut his fiscal 2013 revenue target for Facebook’s Payments unit to $582 million, down from $797 million. “We expect Facebook shares to be pressured in the near term as Zynga’s outlook weighs on high-margin Payments revenue and Facebook’s overall earnings profile,” he explains in note to clients. Some may consider Facebook to be the worst Internet IPO this year, given its massive size and share price decline, but the company is still profitable. Zynga, on the other hand, continues to lose money.
Many ridiculed Facebook for purchasing Instagram for $1 billion earlier this year, but that move is looking better as more users flock to the photo-sharing app. In August, U.S. smartphone owners visited Instagram from their mobile devices more frequently and for longer spans of time than Twitter. In contrast, Zynga paid about $200 million for a company peaking out, OMGPOP. The Draw Something developer is now the cause of Zynga writing off between $85 million and $95 million for the third quarter. Furthermore, Zynga’s recent sequel to its blockbuster hit FarmVille has failed to re-energize the company.
At this point in time, Zynga keeps itself from being the worst Internet IPO ever due to the fact that it is still in business and publicly traded, but with the current path it is on, that may soon change.
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