Zynga lowers its full-year outlook, writes down OMGPOP buy

The social-gaming company said third-quarter earnings will be lousy as it writes off a big chunk of its OMGPOP acquisition. Full-year numbers will also suffer, and shares dropped more than 20 percent after hours.

Donna Tam Staff Writer / News
Donna Tam covers Amazon and other fun stuff for CNET News. She is a San Francisco native who enjoys feasting, merrymaking, checking her Gmail and reading her Kindle.
Donna Tam
2 min read

Zynga lowered its 2012 outlook and said it will write off nearly half the reported $200 million it paid for game maker OMGPOP in March, in the latest sign of the woes overtaking the social-gaming company.

The company said it expects 2012 bookings (i.e., sales deals that haven't necessarily yielded revenue yet) to fall short by about eight percent compared to its previous estimate. Likewise, Zynga said its non-standard measure of profit (which it calls "adjusted" EBITDA) will likely be about 28 percent lower than expected.

Zynga said it expects to report revenue of $300 million to $305 million for its third quarter, as well as a net loss of $90 million to $85 million. The company said it will write off between $85 million and $95 million related to the OMGPOP acquisition. 

The company acquired OMGPOP for a reported $210 million in March, just as OMGPOP's flagship game Draw Something was nearing the peak of its popularity. After a good start in April, Draw Something's user numbers dropped significantly.

Some Zynga games -- including The Ville, which is currently the subject of an infringement lawsuit brought by Electronics Arts -- just aren't as doing as well as Zynga had hoped. The company may also have to delay some game launches, and Zynga is planning for some "cost reductions" in the fourth quarter, CEO and founder Mark Pincus said in the release:

The third quarter of 2012 continued to be challenging and, while many of our games performed to plan, as a whole we did not execute to our satisfaction. We're addressing these near-term challenges by implementing targeted cost reductions in the fourth quarter and rationalizing our product R&D pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business where we have one of the strongest positions in the industry. These actions support our strategy to transition from being a first party web game developer to a multiplatform game network. We remain optimistic about the opportunity for social gaming and the power of our player network of 311 million monthly active users. When we offer our players highly engaging content, they respond. FarmVille2 has been our most successful launch since CastleVille in terms of daily bookings, and we now offer 3 of the top 5 most popular mobile games in the U.S. in terms of time spent according to Nielsen.

It's been a rough ride for Zynga, which also had disappointing earnings last quarter. With today's news, the stock dropped more than 20 percent during after-hours trading.

In an internal memo to employees, posted on Zynga's blog, Pincus urged employees to look ahead and said the company will be investing more in casino-type games, such as Zynga Poker, as well as games in the genre of Mafia Wars.

Update, 3:59 p.m. PT: with additional background.