Expenses curb surging revenues; Market panic clouds IPO bid
Zynga, the social games giant currently struggling to become publicly traded, has reported a 90 per cent drop in second quarter net income.
The social games giant’s net profit sank to $1.4 million for the three months ending July 30. In the same period a year prior, the San Franciscan company made about $14 million.
The news could add further disruption to Zynga’s painful and protracted initial public offering.
In July the group bid to have its shares listed on the New York Stock Exchange, though wider market turmoil has delayed the deal.
Zynga’s revenue grew 115 per cent in the same period, up to $279 million, which suggests expenditure was a factor in the slump.
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Wedbush Morgan analyst Michael Pachter said Zynga has booked development and marketing costs for two major games, Empires & Allies and Adventure World, while revenue from those releases would not flood in until the next financial period.
Zynga’s IPO bid is still on course to be completed after November, the company recently said. But panic swept across the markets yesterday, pulling the economy down to what some economists are calling “pre-Lehman Brothers levels”.
At a conference yesterday, the International Monetary Fund claimed the western world would not suffer a second recession, but the group was “losing hope” in that belief each day as the Eurozone continues to suffer from economic paralysis.
I knew it would happen. All of the 'games' they made become extremely boring after a short while, and they're all just reskins of eachother. Besides, hardly anyone actually pays for them.
Whilst I agree about most of Zynga's games, the article actually suggests that they are making MORE profit and sales:
"Zynga’s revenue grew 115 per cent in the same period, up to $279 million, which suggests expenditure was a factor in the slump."
So they're doing better than ever in terms of users it would seem. Who knows what they're spending it all on though.
@ CukyDoh Answer is quite simple - marketing cost. That's where the money goes. The negative spiral starts when CPA (cost-per-aqusition) of users become higher or close to marketing spend. Even a dogsh@£ development budget won't help. Facebook was way more 'viral' initially through semi-spam mass spreads to friends, where CPA was much lower. FB getting greedier and more restrictive, will shrink this space... I think we're seeing the beginning.
This is way past due. It's about damn time consumers realised that the value proposition for virtual goods with artificial scarcity and arbitrary pricing is pretty much nil.
I expect them to spiral into insignificance now that professional game developers are jumping into their marketplace.
this is a non-issue. costs are up because they developed 2 new games that have not yet contributed to the bottom line, so not only marketing costs but development costs are up. Revenues are up. Same would happen at any AAA studio. Total false alarm.
@Rod. Your comment is really interesting. Is there anywhere that has statistics on these kind of things? It would be great to see an article on current trends, how they differ from the birth of zynga and how much of this is actually the beginning of the end, if its a cyclical dip or if its a bizarre blip. Seeing as how all these businesses run on statistics, it would be interesting to know about some statistics on them.
