Zynga Stock Is Plunging After Earnings. Here’s Why.

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The second-quarter profit was a surprise at mobile-videogame company Zynga, but shares are falling because fewer people are playing.


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Zynga

stock plunged in the extended session Thursday, after the company signaled that people were spending less time playing mobile games as the economies in the U.S. and elsewhere begin to reopen.

Zynga (ticker: ZNGA), which owns gaming brands including Farmville and Words With Friends, reported a surprise second-quarter profit, but it missed consensus estimates for revenue on an adjusted basis, and tamped down expectations for the remainder of the year.

Zynga stock fell 15% in extended trading.

As Covid-19 restrictions began to recede in May and June, some of the players Zynga had picked up earlier this year began to drop off, CEO Frank Gibeau said. Related to that, daily active user numbers also slipped.

“Basically, they’re just playing less—they were going outside or whatever they’re doing—and that started to show up,” he said.


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The game publisher reported second-quarter net income of $27.8 million, which amounts to 2 cents a share, compared with a loss of $150.3 million, or 16 cents a share, in the year-ago period. Revenue grew 59% to $720 million.

Zynga reported second-quarter net bookings rose 37% to $712 million. Net bookings are common non-GAAP figure used by the videogame industry that includes the impact of deferred revenue.

Analysts had expected a second-quarter net loss of $40.7 million, or 2 cents a share, on bookings of $716.3 million.

Gibeau said July is usually a choppy month for its mobile-game franchises. But coupled with reopening after months of lockdowns, and a change

Apple

(AAPL) made to its app tracking, has dampened the company’s outlook. Zynga’s daily active user count rose by 2 million to 41 million sequentially, though the company said the growth year-over-year of 87% was primarily because of the portfolio from its Rollic acquisition.

“We’re still up 23% year-over-year off a very tough comparison, so the business is healthy,” Gibeau said. “The adjustment on the top line is the result of a dynamics we believe are short term in nature.”

For the full year, Zynga lowered its top-line forecast by 3%. The company now said it expected a net loss of $135 million on bookings of $2.8 billion. The consensus forecast was for a loss of 9 cents a share on bookings of $2.9 billion.

Zynga said it expected a third-quarter net loss of $110 million, and bookings of $660 million. Wall Street expected third quarter net loss of 4 cents a share, on bookings of $721 million.

Separately, Zynga said it was acquiring StarLark for $525 million in cash and stock. StarLark is a mobile-videogame developer known for Golf Rival. The deal is expected to close in the fourth quarter of this year.

Gibeau said that the acquisition is part of the company’s strategy to increase its presence in Asia. “One of the keys in our view is to have development in the region,” he said.

Keybanc analyst Tyler Parker warned in July that based on the bank’s proprietary data, Zynga’s second-quarter earnings could disappoint. Despite the potential issue, he maintained his Overweight rating.

Zynga stock slumped 1.3% Thursday to close the regular session at $9.77.

Write to Max A. Cherney at max.cherney@barrons.com

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