Stock Update (NASDAQ:ZNGA): Zynga Inc Announces Second Quarter 2016 Financial Results


Zynga Inc (NASDAQ:ZNGA), a leading social game developer, today announced financial results for the second quarter ended June 30, 2016.

“We are continuing to make great progress in our turnaround. Our Q2 bookings and Adjusted EBITDA were both above the high end of our guidance range, with bookings at $175 million and Adjusted EBITDA at $12 million. In Q2, we launched 4 new games, including the successful release of NaturalMotion’s highly anticipated CSR2. Our top live services saw growth, with Words With Friends, Social Slots and Zynga Poker delivering strong results this quarter. We are tightening our operating model and improving our cost management as we do more with less, particularly in marketing. While we have more work to do in our turnaround, I am encouraged to see the momentum we feel in our products and company show up in our results,” said Frank Gibeau, CEO of Zynga.

Financial Highlights

  • GAAP revenue of $182 million and GAAP net loss of $4 million
  • Bookings of $175 million; above the high end of the guidance range, flat year-over-year and down 4% sequentially
  • Adjusted EBITDA of $12 million; above the guidance range
  • $868 million in cash, cash equivalents and marketable securities
  • GAAP operating expenses of $132 million, down 15%, quarter-over-quarter
  • Non-GAAP operating expenses of $118 million; down 5% quarter-over-quarter, driven by a 14% reduction in marketing expenses

Second Quarter 2016 Financial Summary

  • Revenue: Revenue was $182 million for the second quarter of 2016, a decrease of 3% compared to the first quarter of 2016 and a decrease of 9% compared to the second quarter of 2015. Online game revenue was $136 million, a decrease of 1% compared to the first quarter of 2016 and a decrease of 16% compared to the second quarter of 2015. Advertising and other revenue was $46 million, a decrease of 8% compared to the first quarter of 2016 and an increase of 22% compared to the second quarter of 2015. Zynga Poker,Wizard of Oz Slots, FarmVille 2, Hit It Rich! Slots and Empires & Allies accounted for 19%, 15%, 12%, 11% and 10% of online game revenue, respectively, for the second quarter of 2016 while Zynga Poker, FarmVille 2, FarmVille 2: Country Escape, Hit It Rich! Slots,and Wizard of Oz Slots, accounted for 18%, 18%, 16%, 16%, and 10%, respectively, for the second quarter of 2015.
  • Bookings: Bookings were $175 million for the second quarter of 2016, a decrease of 4% compared to the first quarter of 2016 and flat compared to the second quarter of 2015.
  • Net income (loss): Net loss was ($4) million for the second quarter of 2016, compared to net loss of ($27) million for the first quarter of 2016 and net loss of ($27) million for the second quarter of 2015. The quarter-over-quarter decrease in net loss was primarily due to lower costs and expenses (primarily due to a benefit for the change in estimated fair value of the contingent consideration liability for Rising Tide in the second quarter of 2016 and, to a lesser extent, lower marketing costs).
  • Adjusted EBITDA: Adjusted EBITDA was $12 million for the second quarter of 2016, compared to $11 million in the first quarter of 2016 and $1 million for the second quarter of 2015. The quarter-over-quarter change in adjusted EBITDA was primarily due to lower marketing costs.
  • Non-GAAP net income (loss): Non-GAAP net income was $2 million for the second quarter of 2016, compared to non-GAAP net income of $2 million in the first quarter of 2016 and non-GAAP net loss of ($8) million in the second quarter of 2015.
  • Net income (loss) per share: Diluted net loss per share was ($0.01) for the second quarter of 2016, compared to diluted net loss per share of ($0.03) for the first quarter of 2016 and diluted net loss per share of ($0.03) for the second quarter of 2015.
  • Non-GAAP earnings (loss) per share: Non-GAAP earnings per share was $0.00 for the second quarter of 2016, compared to non-GAAP earnings per share of $0.00 for the first quarter of 2016 and non-GAAP loss per share of ($0.01) for the second quarter of 2015.
  • Cash and cash flow: As of June 30, 2016, cash, cash equivalents and marketable securities were approximately $868 million, compared to $857 million as of March 31, 2016. Cash flow from operations was $15 million for the second quarter of 2016, compared to($3) million for the first quarter of 2016 and $4 million for the second quarter of 2015. Free cash flow was $13 million for the second quarter of 2016 compared to ($6) million for the first quarter of 2016 and $1 million for the second quarter of 2015.

Third Quarter Outlook

Zynga’s outlook for the third quarter of 2016 is as follows:

  • Revenue is projected to be in the range of $170 million to $180 million
  • Net loss is projected to be in the range of ($33) million to ($29) million
  • Net loss per share is projected to be in the range of ($0.04) to ($0.03) based on a share count projected to be approximately 880 million shares
  • Bookings are projected to be in the range of $180 million to $190 million
  • Adjusted EBITDA is projected to be in the range of $12 million to $16 million
  • Non-GAAP earnings per share is projected to be $0.01, based on a diluted share count projected to be approximately 901 million shares (Original Source)

Shares of Zynga are falling nearly 9% to $2.70 in after-hours trading. ZNGA has a 1-year high of $3.02 and a 1-year low of $1.78. The stock’s 50-day moving average is $2.70 and its 200-day moving average is $2.44.

On the ratings front, Zynga has been the subject of a number of recent research reports. In a report released yesterday, Jefferies analyst Brian Pitz reiterated a Buy rating on ZNGA. Separately, on the same day, Cowen’s Doug Creutz upgraded the stock to Buy and has a price target of $3.50.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Brian Pitz and Doug Creutz have a total average return of 9.7% and 14.2% respectively. Pitz has a success rate of 71% and is ranked #36 out of 4085 analysts, while Creutz has a success rate of 59% and is ranked #509.

Overall, one research analyst has rated the stock with a Sell rating, one research analyst has assigned a Hold rating and 5 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $3.12 which is 5.1% above where the stock opened today.

Zynga, Inc. operates as an online social game services company. It engages in the developing, marketing and operating of online social games as live services played over the Internet and on social networking sites and mobile platforms. The company provides its online social games under the Zynga Poker, Words With Friends, Scramble With Friends, Gems with Friends, Draw Something, FarmVille, FarmVille2, ChefVille, CityVille, Bubble Safari and Ruby Blast. It has operations in Asia, Canada, Europe and the United States of America.