Zynga Posts Smaller Loss Than Expected, Appoints COO

Zynga Inc. (ZNGA), reporting on its first quarter under Chief Executive Officer Don Mattrick, recorded a smaller-than-expected loss as purchases of items used in games exceeded the company’s forecast. The shares jumped 5.5 percent.

The third-quarter loss, excluding items, amounted to 2 cents a share, the San Francisco-based maker of “Farmville” said yesterday in a statement. Analysts had forecast a loss of 4 cents, the average of 23 estimates compiled by Bloomberg. Revenue slid to $202.6 million from $316.6 million a year ago, beating analysts’ projections of $190.2 million.

Zynga said it cut 154 jobs during the quarter and reduced work with outside contractors to keep expenses in line with shrinking revenue. The shares, which still trade at less than half their IPO price, have risen about 30 percent since the news of Mattrick’s appointment amid optimism that the former head of Microsoft Corp.’s games business will engineer a turnaround as players shift to mobile devices.

“They know what they have to do and can do in order to hit their numbers,” Michael Pachter, an analyst with Wedbush Securities Inc. in Los Angeles, said in an interview. Mattrick “is a deliberate guy, and he’s not going to do anything to hurt them by cutting too rapidly, but he will cut when he needs to.” Pachter recommends buying the stock.

Stephanie Hess, a Zynga spokeswoman, said the cuts were part of the company’s previously announced reductions that couldn’t contractually happen until the third quarter.

Lower Sales

Zynga’s sales in the period fell to their lowest since the company went public in 2011 as more Facebook members played games from King.com, maker of “Candy Crush Saga.”

The shares rose to $3.73 at the close today in New York. They have gained 58 percent this year.

Mattrick, who replaced founder Mark Pincus as chief executive officer in July, yesterday named veteran game executive Clive Downie as chief operating officer, effective Nov. 4.

“As we build new leadership capabilities and focus the company on long-term growth, Clive’s customer-centric point of view and proven track record will be invaluable to Zynga’s future,” Mattrick said in a statement.

Downie, 41, who resigned this week as CEO of social-mobile company DeNA West, will be responsible for Zynga’s publishing, live game operations, communications, business development and human resources.

Game studios, the legal and finance departments will continue to report directly to Mattrick. Both men previously worked at Electronic Arts Inc. (EA)

Virtual Goods

Bookings, the value of virtual goods sold in the quarter, totaled $152 million in the third quarter, exceeding the company’s July 25 forecast of $125 million to $150 million. They were down 40 percent from a year earlier.

Zynga’s average monthly mobile users totaled 51 million at the end of September, compared with 57 million three months earlier. Mattrick said it will take time to identify the best mobile opportunities. He has told employees to focus on transforming some of its key franchises for on-the-go use.

“Mobile success is difficult to reproduce amid an increasingly competitive landscape,” Michael Olson, an analyst with Piper Jaffray Cos. in Minneapolis who has a hold rating on the shares, wrote in an Oct. 22 note. “With the exception of poker, Zynga has yet to publish a mobile game that can stay consistently popular over several months.”

The net loss for the third quarter narrowed to $68,000, or break-even per share, from a loss of $52.7 million, or 7 cents, a year earlier, Zynga said. The company’s reported revenue includes virtual items sold before the quarter and amortized over their expected life.

For the fourth quarter, Zynga forecasts revenue of $175 million to $185 million, compared with analysts’ estimates of $186.3 million. The company sees a loss of 4 cents to 5 cents a share, excluding items, more than the 3-cent loss projected by analysts. Bookings, the value of virtual goods, are estimated at $130 million to $140 million, Zynga said.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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