Zynga's 2Q Losses Narrow as Company Slashes Cost

Zynga relied on mass layoffs and other cost-cutting to trim its second-quarter losses as the troubled company struggled to come up with compelling games to play on smartphones and tablet computers.

The results announced Thursday covered Zynga Inc.'s final reporting period before the San Francisco company hired former Microsoft executive Don Mattrick to replace founder Mark Pincus as CEO. Zynga is counting on Mattrick to engineer a turnaround after a highly successful stint in charge of Microsoft Corp.'s Xbox video game operations.

The second-quarter review gave Mattrick his first opportunity to publicly assess the challenges facing Zynga since he started the new job earlier this month. In a statement, Mattrick didn't sugarcoat the challenges facing Zynga as the maker of games that were once popular on Facebook's social network tries to figure out how to connect with game players who are increasingly entertaining themselves on mobile devices.

``We have a lot of hard work in front of us and as we reset, we expect to see more volatility in our business than we would like over the next two to four quarters,'' Mattrick said.

As if to underscore the bumpy road ahead, Zynga's financial forecast for the current quarter was worse

than analysts anticipated. That triggered a nearly 13 percent drop in Zynga's already-drooping stock. The shares are down by nearly 70 percent from their December 2011 initial public offering price of $10. Zynga also let down Wall Street by deciding not to pursue a U.S. license to peddle gambling games that would have involved the exchange of real currency.

Had Zynga expanded into that field, it would have opened up another potentially lucrative source of revenue. The company is still testing a gambling product in the United Kingdom.

When the company went public, Zynga looked like a winner to many investors because games such as ``Farmville'' and ``Mafia Wars'' had gained enthusiastic and addictive followings on Facebook. But things have changed dramatically in the past few years as other digital game makers invaded Facebook and more people migrated to other pastimes on smartphones.

King.com, the maker of the popular ``Candy Crush Saga,'' has since supplanted Zynga as the No. 1 maker of social games. The latest numbers reflect the diminishing popularity of Zynga's game franchise. An average of 39 million people played Zynga's games on a daily basis during the second quarter, a 45 percent decline from 72 million at the same time last year.

The adversity prompted Zynga to lay off 520 employees, or 18 percent of its workforce, last month. Some analysts believe Mattrick will have slash the payroll even more. Zynga lost $15.8 million, or 2 cents per share, during the three months ending in June. That compared with a loss of $22.8 million, or 3 cents per share, a year ago. If not for certain charges, Zynga said it would have lost a penny a share. That figure was better than the loss of 3 cents per share envisioned by analysts surveyed by FactSet.

Zynga's revenue plunged 31 percent from last year to $231 million _ about $4 million above analyst estimates. In the current quarter ending in September, Zynga foresees its adjusted losses ranging 5 cents to 9 cents per share on revenue ranging from $175 million to $200 million. Analysts had been hoping for an adjusted loss of 2 cents per share on revenue of $214 million. Zynga's stock shed 45 cents to $3.05 in extended trading.

Copyright AP - Associated Press
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