Earnings Preview: Zynga to post 2Q under new CEO

AP News
Posted: Jul 24, 2013 6:39 AM

SAN FRANCISCO (AP) — Zynga's second-quarter results, to be released after the market close Thursday, will signal just how much work newly arrived CEO Don Mattrick has before him if he is to alter the course of the struggling online game maker.

WHAT TO WATCH FOR: Mattrick, who hails from Microsoft's Xbox business, arrived in early July, meaning that he'll be explaining Zynga's performance in the three months before he came on board. But he will set the tone for what comes next.

Founder Mark Pincus — still the company's chairman and chief product officer — was removed as CEO due to persistently weak stock performance and waning interest in its once-popular games. Pincus had already started to cut costs. Zynga announced 520 job cuts in June as it attempted to follow customers, and potential customers, who rapidly shifted from playing games computers, to playing on cell phones and tablets.

Wedbush analyst Michael Pachter believes that the jobs cuts "could allow the company to break even for the year," if games launched during the second half of the year prove popular.

"While Zynga cut a meaningful number of jobs, the company was staffed with a far more ambitious growth plan that has not yet materialized, and we think that Mr. Mattrick will focus the next several months on determining an appropriate staffing level," Pachter said.

WHY IT MATTERS: Zynga was once the high-flying star of social games, churning out the top games people played on Facebook. But it's been ousted from its No. 1 spot by King.com, the maker of the popular "Candy Crush Saga." It's now up to Mattrick to keep the company's technology relevant to gamers who have moved on from the blockbuster "FarmVille," which Zynga first launched in 2009.

WHAT'S EXPECTED: Analysts, on average, are expecting a loss of 3 cents per share on revenue of $228.5 million, according to a poll by FactSet.

In June, Zynga reaffirmed its earlier outlook for an adjusted loss of 3 to 4 cents per share on revenue of $225 million to $235 million.

LAST YEAR'S QUARTER: Zynga had a loss of $22.8 million, or 3 cents per share, in the April-June quarter of 2012. Adjusted earnings in the latest quarter were a penny per share, below expectations of 5 cents per share. Revenue grew 19 percent to $332 million, which was also below Wall Street's expectations at the time.